Gold prices surged to a six-year high as manufacturing activity decelerated in August for the first time in three years, renewing fears of an economic slowdown. Gold prices were at $1,546.08 an ounce on Sep 3, gaining 1.1% in a day. The yellow metal has gained 21% so far this year on the back of a dovish fed, safe haven demand triggered by ongoing trade war between United States and China, and concerns over the global economic outlook.
Per the Institute for Supply Management’s latest report, Purchasing Managers’ Index (PMI) for August declined to 49.1% from 51.2% in July. Notably, new orders, production and hiring have declined sharply. Even though the manufacturing sector has been decelerating for the past four months — this was the first instance where the reading has gone below 50. This marks the end of 35 straight months of growth for the manufacturing sector.
This raises anticipation of further rate cuts by the Fed, which will eventually work in gold’s favor. Lower the interest rates, the lesser will be the opportunity cost of holding non-yielding bullion, making gold attractive for investors holding other currencies. Further, volatile stock markets, uncertainty on the Brexit front, and protests in Hong Kong will fuel gold prices. Moreover, with the U.S.-China trade war showing no signs of abatement, investors remain jittery, which in turn will work in favor of gold.
The prospects of a dwindling supply looms large on the gold-mining industry while demand remains strong with India and China acting as the major drivers. Further, the last few months of the year are seasonally stronger in India due to wedding and festive seasons. The combination of lower mined gold supply and higher demand, and geopolitical tensions could eventually drive prices north, which bodes well for gold-miners.
Gold Industry Performance
The Gold Mining industry has rallied 51.6% so far this year compared with the S&P 500’s growth of 15.3%. Going by the forward 12 months EV/EBITDA multiple (a preferred valuation metric for mining companies that have high capital expenditures), the gold mining industry has a multiple of 8.0, much lower than the S&P 500’s multiple of 11.6.
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 #9, which places it at the top 4% 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.
We suggest five gold-mining stocks carrying a Zacks Rank of #1 (Strong Buy) or 2 (Buy) that investors can take a look at. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kirkland Lake Gold Ltd. (KL - Free Report) : This Toronto, Canada-based company carries a Zacks Rank #1. The company has expected earnings growth of 69.85% for the current year and 13.85% for the next. The Zacks Consensus Estimate for the current year and for fiscal 2020 has moved up 12% and 14%, respectively, over the last 90 days. The company has an average positive earnings surprise of 6.07% over the trailing four quarters. The stock has surged 91% so far this year.
Franco-Nevada Corporation (FNV - Free Report) : The Zacks Consensus Estimate for earnings for this Toronto, Canada-based company indicates year-over-year improvement of 34.19%. Further, the estimate has moved improved 20% over the past 90 days. The company has an average positive earnings surprise history of 9.63% over the trailing four quarters. The company has a long-term estimated earnings growth rate of 4%. Shares of this Zacks Ranked #1 stock has gone up 40.8% year to date.
Agnico Eagle Mines Limited (AEM - Free Report) : This Toronto, Canada-based company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings per share for fiscal 2019 suggests year-over-year growth of 157.14%. The estimate moved up 57% over the past 90 days. The company has a long-term estimated earnings growth rate of 1%. The company has an average positive earnings surprise history of 266.67%. Shares of this company have surged 56.6% year to date.
Barrick Gold Corporation (GOLD - Free Report) : This Toronto, Canada-based company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings for fiscal 2019 suggests year-over-year growth of 54.29%. The estimate has gone up 38% over the past 90 days. The company has an average positive earnings surprise of 8.33% over the trailing four quarters. The company has a long-term estimated earnings growth rate of 2.00%. Year to date, the company’s shares have appreciated 43.4%.
B2Gold Corp. (BTG - Free Report) : This Vancouver, Canada-based company carries a Zacks Rank #2. The company has expected earnings growth of 25% for the current year. The Zacks Consensus Estimate for the current year has improved 25% over the last 90 days. The company has an average positive earnings surprise of 4.17% over the trailing four quarters. The stock has surged 22.6% so far this year.
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