While gold has broadly outperformed stocks over the past few years, this has pretty much reversed in the past few months. Now, safety oriented precious metals are slumping while stocks are marching towards fresh all-time highs.
This trend has led many to abandon gold for the time being as its traditional role as a store of value and inflation hedge isn’t in demand in these types of markets. Gold’s lack of appeal could continue now that China and other emerging markets are back on track, while Europe’s debt issues have subsided for the time being.
While this has had a negative impact on gold prices, it has been even worse news for gold miners. That is because these often trade as a leveraged play on precious metal prices, so they can often underperform spot prices when metals are slumping.
In particular, this situation has been especially bad news for Goldcorp (GG - Analyst Report), a firm that could continue to see weakness if current conditions hold.
Goldcorp in Focus
GG is a North American-based gold producer with mines in the U.S. and Canada. The company is currently engaged in a variety of aspects of gold mining, including exploration, extraction, and processing.
In addition to its Black Hills, South Dakota mine, the firm’s main focus is on its Red Lake in Canada. This is actually the largest producing gold mine in the country, so the company obviously relies on a strong price for gold to power its growth.
This hasn’t been the case as of late though, as the yellow metal is now well below its all-time highs and it has been stuck in a decidedly bearish trend. A true market reversal or continued talk of monetary easing across the world would be the only things that could turn around this trend, and neither really seems likely.
Particularly this is the case after the latest G-7 meeting rumors. While there was some talk of a currency war, there is now speculation that the G-7 nations will release a statement to show their commitment to ‘market-determined’ exchange rates, instead of broad devaluations to remain competitive.
Gold bugs were hoping for more devaluations in order to reduce faith in fiat currencies and rekindle investor interest in precious metals. These wishes will likely have to put on hold though, suggesting that more weakness could be in the cards for gold and gold producers in the near future.
Beyond these macroeconomic factors, the estimate picture isn’t exactly favorable either. Next quarter’s consensus estimate has fallen from 71 cents 90 days ago to just 45 cents right now.
Meanwhile, the next full year estimate for GG has slid almost 33% in the past quarter, underscoring the bearish outlook on the space. In fact, not a single estimate revision for the next quarter or the next year was positive in the past ninety days.
Thanks to this bearish market outlook, it is hard to find an analyst that has a rosy prediction for GG going forward. This has pushed the company to have a terrible estimate picture and now, a Zacks Rank of 5 or ‘Strong Sell’.
Considering that GG was a Zacks Rank of 3 or ‘hold’ just a week ago, investors may want to reconsider looking at this stock in the near term. The firm has fallen into the lowest Zacks Rank bracket pretty quickly, and given the bearish outlook for the space, one has to assume that more weakness is ahead for the company.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Follow @Eric Dutram on Twitter