In fourth-quarter 2019, gold prices averaged $1,481 per ounce — the highest average price since the first quarter of 2013. Overall the year 2019 has been an eventful for gold with prices having surpassed the threshold limit of $1,500 an ounce. Gold prices surged to 19% in 2019 — its biggest annual increase since 2010, wherein it had reported growth of 29.5%.
Uncertainty in the U.S-China trade front, geopolitical concerns between the United States and the Middle East, the Brexit mayhem and concerns over the global economic outlook have compelled investors to seek safe-haven investment options like gold. Further, three rate cuts by the Fed only added to the rally. Notably, lower the interest rates, lesser will be the opportunity cost of holding non-yielding bullion, making gold an attractive option for investors holding other currencies.
Gold prices have also been gaining from contraction in the manufacturing sector lately. Per the Institute for Supply Management, the U.S Purchasing Managers’ Index (PMI) was 47.2% in December, following a reading of 48.1% in November and 48.3% in October. Notably, a reading above 50 denotes expansion in the manufacturing sector and below 50 indicates contractions. Overall, for the fourth quarter, total industrial production declined at an annual rate of 0.5%.
Gold demand in India, a major consumer, is seasonally high during the second half of the year due to festival and wedding related buying activities. However, the record high gold prices are likely to have thwarted demand in the fourth quarter. Further, two-thirds of India’s gold demand comes from rural areas, where jewelry is a traditional store of wealth. A muted rural demand and domestic economic slowdown dampened demand. Demand in China has also been impacted by a slowing economy, rising inflation, impact of global trade disputes and higher gold prices.
Further, the gold-mining industry has to contend with escalating production costs including the cost of electricity, wages, water and materials and the fourth quarter is likely to have been no exception to this trend. Consequently, the industry participants have been focusing on improving sales volumes while being cost-effective at the same time. They also have been concentrating efforts on operating efficiently and lowering debt levels to maintain margins.
Per the Zacks classification, the gold mining industry comes under the broader Basic Materials sector. Per the latest Earnings Trends report, the sector’s earnings are expected to decline 23.2% on 8.8% lower revenues. However, the slump is not restricted to this sector, as seven of the 16 Zacks sectors are expected to log declines this earnings season.
Picking Up Winners From the Gold Mining Space
It is wise to select gold stocks that are well positioned 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 Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.
You can the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is 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.
Our Mining Picks
Yamana Gold Inc. AUY engages in operating mines, development stage projects, and exploration and mineral properties primarily in Canada, Brazil, Chile, and Argentina. The Toronto, Canada-based company has an Earnings ESP of +9.09% and a Zacks Rank #3. The company beat estimates in the trailing four quarters by 100%, on average. The Zacks Consensus Estimate for earnings for fourth quarter is pegged at 4 cents, indicating an improvement of 33% from the year-ago quarter. It is slated to release quarterly earnings on Feb 13, after the closing bell.
Yamana Gold Inc. Price and EPS Surprise