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Gold Drops But Doesn't Lose Sheen: 3 Stocks to Bet On

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Gold prices dropped to a 10-week low, hitting $1291.65 on Apr 4, owing to rise in dollar. Weekly jobless claims declining to 50-year low, strong manufacturing data and optimism regarding US-China trade negotiations fueled the greenback’s rise.

Per the Labor department, jobless claims in the week ended Mar 30, declined by 10,000 to 202,000 – the lowest level since 1969. This signals that the U.S. labor market continues to build momentum and a reassuring sign for the economy. All eyes are now on the to-be-released employment report for March.

Per the Institute for Supply Management, March PMI stood at 55.3%, indicating growth for the 31st consecutive month for the manufacturing sector. These developments along with optimism regarding a possible trade deal between the United States and China, aided dollar and stocks. The Dow Jones Industrial Average rose 0.64% on Apr 4 while S&P 500 rallied 0.21%. The U.S Dollar Index, which measures the greenback against six trading rivals, closed at 97.30, up 0.2%. Gold usually moves in opposite direction with the dollar. Further, when equities post gains, investors stop buying safe-haven assets such as gold.

Notwithstanding this dip, gold prices have notched a gain 0.8% so far this year and even crossed the psychological level of $1,300 an ounce. Let’s take a look at the factors that are likely to support gold prices this year.

A Dovish Fed: The Fed’s announcement that short-term interest rates will remain unchanged and no hikes expected in 2019, will be conducive for gold prices.

Central Bank's Increasing Appetite for Gold: There has been a noted increase in demand for gold as a reserve asset in 2018, rising 74% compared with 2017. Central banks added 651.5 tons to gold reserves in 2018, the second highest yearly total on record.

India & China Hold Promise: In the last decade, combined demand for gold from India and China has soared 71%. The expanding middle class combined with broader economic growth, will have a significant impact on gold demand. The second half of the year is seasonally stronger in India due to wedding and festive seasons.

Safe-haven Demand: Persistent uncertainty surrounding Brexit timing and its implications will continue to aid gold prices. Gold has long been considered as a safe haven investment in times of financial or political uncertainty.

Industry Positioning, Valuation

Year to date, the Gold Mining industry advanced 6.7% while the S&P 500’s rallied 14.5%. The industry has a trailing 12-month EV/EBITDA multiple of 7.7, lower than the S&P 500’s 11.0.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Mining- Gold Industry, which is a 33-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #95, which places it at the top 37% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Our Picks

Kirkland Lake Gold Ltd. : This Toronto, Canada-based company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for earnings for 2019 has gone up 44% over the past 90 days and projects year-over-year growth of 47%. The company has delivered average positive earnings surprise of 6.45% over the trailing four quarters. Its shares have soared 109% in the past year.

Osisko Gold Royalties Ltd (OR - Free Report) : This Montreal, Canada company carries a Zacks Rank #2 (Buy). The company has delivered average positive earnings surprise of 116.67% over the trailing four quarters. Its shares have gone up 18.4% over the last year.

Sibanye Gold Limited : This Weltevreden Park, South Africa-based company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings for 2019 is 7 cents per share against a loss per share of 10 cents in 2018. Sibanye Gold has gained 18.6% over the past year.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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