Gold had an overall solid run in the second quarter of 2023, averaging a record $1,976 per ounce. The yellow metal yielded 6% year-over-year growth. At the beginning of the quarter, gold prices were supported by renewed concerns over the U.S. banking turmoil and expectations of further interest rate hikes. Prices remained above $2,000 an ounce for most of the quarter but lost steam near the end, as the U.S. Fed left interest rates unchanged at its June meeting. Nevertheless, the yellow metal ended the quarter at $1,929.40 an ounce, which was 7% higher than the last year’s level.

Higher average gold prices are expected to have supported the earnings performances of gold mining companies in the April-June quarter. The Mining - Gold industry falls under the broader Zacks Basic Materials sector. Per our latest Earnings Trends report, second-quarter earnings for the S&P 500 companies within the sector are expected to decline 39.4% — suggesting a deceleration from the first quarter’s reported decrease of 29.4%. This is mainly owing to lower overall commodity prices, dragged down by weak demand in China. Gold miners are, however, expected to deviate from this trend, considering that gold has outperformed other assets this year.

We have handpicked a few gold companies, Kinross Gold (KGC Quick QuoteKGC - Free Report) , Osisko Gold Royalties (OR Quick QuoteOR - Free Report) and Iamgold (IAG Quick QuoteIAG - Free Report) , which are expected to deliver improved results and are set to beat earnings estimates this earnings season.

Factors at Play for Gold Miners in Q2

Per the World Gold Council, gold demand in the second quarter dipped 2% year over year to 920.7 tons. This was mainly due to lower purchases by central banks in contrast to the high levels of buying seen last year, which offset strong demand in other areas.

Jewelry demand rose 3% to 476 tons in the quarter, as the end of the zero-COVID policy in China led to pent-up demand for the bullion, offsetting weak demand in India due to high prices.

Investment demand was at 256 tons, 20% higher than the previous year. This was mainly driven by a 6% increase in bar and coin investment, which offset the impacts of Gold ETF outflows of 21 tons witnessed for the quarter. Despite the outflow, this compared favorably with the prior-year quarter, which saw an outflow of 47 tons. Although the quarter started positively with inflows of 15.3 tons in April and 19.3 tons in May, gold ETFs reversed course in June with outflows of 56 tons mainly due to a dip in gold prices. A strong equity market performance in key markets shifted the focus of investors from safe-haven assets like gold.

Mine production in the second quarter of 2023 was up 3% to 923 tons from the prior-year quarter. This was the best performance since the second quarter of 2018. Recycling increased 13% year over year to 322 tons — the highest level since 2016 due to high prices. Total supply improved 7% to 1,255 tons.

The increased output, combined with higher gold prices, is expected to have impacted the performances of the gold miners. However, on the flipside, mining costs have increased this year, driven by inflationary pressure on all aspects of input costs, particularly labor, fuel and electricity. However, gold miners have been focusing efforts on operating efficiently and cutting down costs, which is likely to have sustained margins despite the inflationary scenario.

How to Pick Winners?

It is wise to select gold stocks that are well-poised to beat earnings in their upcoming releases. Nonetheless, given the wide range of companies in this space, the task is by no means easy. One way to do it is by picking stocks, which have the combination of a positive Earnings ESP and a Zacks Rank — #1 (Strong Buy), 2 (Buy) or 3 (Hold).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Research shows that for stocks with the above-mentioned combination of the Zacks Rank and ESP, chances of an earnings surprise are as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

With the Zacks Stock Screener, three such gold stocks have been identified.

Kinross Gold has an Earnings ESP of +2.03% and a Zacks Rank #3 at present. It is slated to release second-quarter 2023 earnings on Aug 2.

The company’s to-be-reported quarter’s performance is expected to have benefited from higher production from all of its sites. Particularly, Tasiast and La Coipa are expected to have driven the company’s performance, with both benefitting from high grades. Higher gold prices and increased gold sales volumes are likely to get reflected in the company’s to-be-reported quarter’s results.

The Zacks Consensus Estimate for KGC’s second-quarter earnings is pegged at 8 cents, suggesting an improvement of 167% from the prior-year quarter’s actual. The estimate has moved down 11% over the past 30 days. The consensus mark for revenues is pinned at $828.4 million, indicating year-over-year growth of 0.8%.

Osisko Gold Royalties currently has an Earnings ESP of +2.33% and a Zacks Rank #3. The company is scheduled to release second-quarter 2023 results on Aug 9.

The company recently announced that attributable gold equivalent ounces (“GEOs”) were around 24,645 in the second quarter of 2023, 11% higher than the year-ago quarter’s reported figure. Preliminary revenues from royalties and streams were disclosed at $60.5 million, which marks a 17% year-over-year increase. Also, the preliminary cost of sales (excluding depletion) increased 16% year over year to $4.3 million in the second quarter. The cash margin in the quarter was $56.2 million, marking 18% growth from the year-ago quarter. These figures indicate that the company is set to report a year-over-year improvement in its second-quarter earnings.

The Zacks Consensus Estimate for the quarter’s earnings is pegged at 11 cents per share, suggesting a turnaround from the loss of 2 cents per share reported in the second quarter of 2022. The estimate has moved down 15% over the past 30 days.

IamGold has an Earnings ESP of +16.67% and a Zacks Rank #3 at present. The company is set to report second-quarter 2023 results on Aug 10. The Zacks Consensus Estimate for second-quarter earnings is pegged at a loss of 2 cents, suggesting a wider loss from the 1 cent reported in the last-year quarter. The estimate has been unchanged over the past 30 days. IAG has a trailing four-quarter earnings surprise of 25%, on average.

The company is expected to report higher year-over-year production results from Essakane and Westwood in the quarter. Essakane is expected to have gained from improved grades and WestWood is anticipated to deliver improved results on the back of the ongoing rehabilitation work. Higher output and gold prices are expected to have aided the company’s performance in the second quarter.