It has not been a “Sweet November” for gold this year with the yellow metal losing 8% value, marking its worst monthly performance since Jun 2013. With this, the bullish stint that gold enjoyed this year, has come to an abrupt end. The double-digit gains that the bullion saw before November have now declined to 9.8%.
What Went Wrong?
A stronger greenback and heightened expectations of an interest-rate hike by the Fed at its December meeting are putting pressure on the bullion. It is a well known fact that there is an inverse relationship between the U.S. dollar and the price of gold. Further, the prospect of higher interest rates can be a headwind as precious metals such as gold do not offer interest.
Payroll processing firm ADP said that U.S. private employment grew 216,000 in November. This was far ahead of the forecast of 161,000 and was indicative of the fact that the labor market remains healthy. This release comes two days ahead of the highly anticipated government’s non-farm payroll report and is often used as a predictor of the former.
Spending by the U.S. companies grew 4.8%, its biggest gain in a year. The U.S Gross domestic product rose at a 3.2% annualized rate in the September quarter, the fastest in two years, compared with an initial estimate of 2.9%. All these factors have stoked the speculation that the Fed will resort to lifting interest year after a year.
Another factor that has dealt a blow to gold is the drying up of customers in India. India is a major buyer of the metal during this time of the year due to the wedding season. But the India government’s “demonetization” of the country's largest banknotes in a bid to track untaxed cash, has dealt a blow to the Indian gold industry.
The subsequent cash crunch following the government’s move has hit the retail demand for the metal hard. A major portion of the gold demand in India stems from rural areas, where jewelry is a traditional way to store wealth.
Basic Materials Sector Price Index
Basic Materials Sector Price Index
Amid this backdrop, it will be a prudent move to avoid gold mining stocks that are experiencing drops in their share price and estimates. For instance, mining stocks like Alamos Gold, Inc. AGI, AngloGold Ashanti Ltd. AU and Richmont Mines Inc. RIC have witnessed a drop of 19.52%, 22.41% and 26.86%, respectively in the past four weeks and all are currently carrying a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
But as the saying goes, “When the going gets tough, the tough get going,” it has rung true for few gold stocks that are gaining despite gold losing its footing. These mining stocks not only have seen their share price surge in the past month but also delivered healthy year-to-date returns as well.
Entrée Gold Inc. EGI, that explores and develops mineral resource properties located in the U.S., Mongolia, Peru and Australia has gained 22.89% in the past four week period and has also outperformed the S&P 500 by 17.25% over the said timeframe. The stock has delivered a year-to-date return of 35.18%.
Gryphon Gold Corporation GYPHQ that engages in the acquisition, exploration and development of gold properties primarily in Nevada, saw its share price increase 22.89% in the past four weeks. It has outpaced the S&P 500 by 186.25% in the said timeframe. Year to date, the stock has delivered a healthy return of 30.44%.
In the past four weeks, United Resource Holdings Group, Inc. URHG, which engages in the acquisition of mining equipment and the development of gold and other precious commodity projects in Nevada, gained 50%, outpacing the S&P 500 by 43.12%. The stock has delivered a year-to-date return of 61.64%.
Northern Dynasty Minerals Ltd. NAK engages in the exploration and development of mineral properties in the U.S. and has gained 42.32% in the past four week period. It has also outperformed the S&P 500 by 35.79% in the said timeframe. The stock has a stellar year-to-date return of 292.6%.
Share price of Pelangio Exploration Inc. PGXPF went up 17.85% in the past four weeks. It has outpaced the S&P 500 by 12.44% in the said timeframe. Year to date, the stock has delivered an impressive return of 446.88%. Pelangio Exploration is a junior gold exploration company that engages in the acquisition, exploration and development of mineral properties in Canada and Ghana.
Share price of gold mining and exploration company, Golden Star Resources, Ltd. GSS went up 1.56% in the past four weeks. Year to date, the stock has delivered an impressive return of 432.49%.
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ANGLOGOLD LTD (AU): Free Stock Analysis Report
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