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5 Reasons Why Gold Mining ETFs & Stocks Have More Room to Run
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Gold had a decent first quarter, thanks to an equity market crash and the resultant safe-haven rally. Middle-East tensions and the coronavirus outbreak have kept global markets edgy since the start of the year. Gold bullion ETF SPDR Gold SharesGLD has also added about 14% in the past month amid the peak of the virus outbreak (read: Beyond Coronavirus, What's Driving Gold ETFs?).
The year-to-date performance was moderate for bullion (up about 12%) as the greenback strength (up 2.1%) capped gains of the bullion. However, things appear brighter for gold bullion as well as gold mining companies in Q2. Notably, gold miners have delivered sturdy performances in the past month. These stocks hail from a favorable Zacks industry (placed at the top 11% of total 250+ industries in the Zacks universe).
What Does Q2 Hold?
The Fed has been acting super-dovish since March.Its latest easing policy, announced on Apr 9, included the investment of “up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments as well as fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.”
This was on top of the Fed’s zero rate policy in the United States and launch of an infinite QE as well as announcement of the buying of highly-rated corporate debt. On Mar 27, President Trump signed a $2-trillion stimulus package. Such a huge sum should keep the dollar’s strength in check. U.S. dollar ETF Invesco DB US Dollar Index Bullish FundUUP was down about 2.5% in the past month.
Then there is the latest uptick in investors’ sentiments. All credit goes to the rollout of gigantic Fed and government stimulus, signs of virus containment and the biggest OPEC output-cut deal. The S&P 500 has just seen the best week since 1974. Several Wall Street strategists like Morgan Stanley and Goldman Sachs have started showing faith in the market recovery. No wonder, such risk-on sentiments will drive gold equities too (read: Stocks Look Set for a Rally: Top-Ranked ETFs to Buy).
Low oil prices are another plus. Mining companies’ 50% of production costs are closely linked to energy prices. As cheap as $20-oil despite the biggest output cut deal by the OPEC should work wonders for gold miners’ operating margins. Coronavirus-led demand disruptions have been weighing on oil prices (read: OPEC Output Deal Cut: Will It Help Oil & Energy ETFs?).
Cheaper valuation and relatively low debt are other positives. Price/Book ratio for the gold mining industry stands at 1.6x versus 3.7x of the S&P 500. Debt/Equity ratio is also favorable for miners (20.8%) compared with the S&P 500 (82%).
Safe-Haven demand for gold will stay strong despite bear market rallies as several Wall Street analysts still believe the latest rally doesn’t have legs. Plus, not only the Fed, most developed and emerging economies have been on a policy easing mode, offering a hefty stimulus to fight the novel coronavirus. The ECB and the BoJ have benchmark interest rates in the negative territory. Right now, real U.S. treasury yields are negative from five-year to 30-year term and this lowers the opportunity cost of holding a non-interest-bearing asset like bullion.
Stocks & ETFs in Focus
Against this backdrop, we highlight a few gold mining ETFs and stocks that appear healthy bets for Q2.
It is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana. The stock has a Zacks Rank #2 (Buy). The stock has added more than 51% in the past month.
The Canadian-based intermediate gold producer with diversified production from three operating mines in North America also has a Zacks Rank #2. The stock is up about 77.8% in the past month.
Image: Bigstock
5 Reasons Why Gold Mining ETFs & Stocks Have More Room to Run
Gold had a decent first quarter, thanks to an equity market crash and the resultant safe-haven rally. Middle-East tensions and the coronavirus outbreak have kept global markets edgy since the start of the year. Gold bullion ETF SPDR Gold Shares GLD has also added about 14% in the past month amid the peak of the virus outbreak (read: Beyond Coronavirus, What's Driving Gold ETFs?).
The year-to-date performance was moderate for bullion (up about 12%) as the greenback strength (up 2.1%) capped gains of the bullion. However, things appear brighter for gold bullion as well as gold mining companies in Q2. Notably, gold miners have delivered sturdy performances in the past month. These stocks hail from a favorable Zacks industry (placed at the top 11% of total 250+ industries in the Zacks universe).
What Does Q2 Hold?
The Fed has been acting super-dovish since March.Its latest easing policy, announced on Apr 9, included the investment of “up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments as well as fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.”
This was on top of the Fed’s zero rate policy in the United States and launch of an infinite QE as well as announcement of the buying of highly-rated corporate debt. On Mar 27, President Trump signed a $2-trillion stimulus package. Such a huge sum should keep the dollar’s strength in check. U.S. dollar ETF Invesco DB US Dollar Index Bullish Fund UUP was down about 2.5% in the past month.
Then there is the latest uptick in investors’ sentiments. All credit goes to the rollout of gigantic Fed and government stimulus, signs of virus containment and the biggest OPEC output-cut deal. The S&P 500 has just seen the best week since 1974. Several Wall Street strategists like Morgan Stanley and Goldman Sachs have started showing faith in the market recovery. No wonder, such risk-on sentiments will drive gold equities too (read: Stocks Look Set for a Rally: Top-Ranked ETFs to Buy).
Low oil prices are another plus. Mining companies’ 50% of production costs are closely linked to energy prices. As cheap as $20-oil despite the biggest output cut deal by the OPEC should work wonders for gold miners’ operating margins. Coronavirus-led demand disruptions have been weighing on oil prices (read: OPEC Output Deal Cut: Will It Help Oil & Energy ETFs?).
Cheaper valuation and relatively low debt are other positives. Price/Book ratio for the gold mining industry stands at 1.6x versus 3.7x of the S&P 500. Debt/Equity ratio is also favorable for miners (20.8%) compared with the S&P 500 (82%).
Safe-Haven demand for gold will stay strong despite bear market rallies as several Wall Street analysts still believe the latest rally doesn’t have legs. Plus, not only the Fed, most developed and emerging economies have been on a policy easing mode, offering a hefty stimulus to fight the novel coronavirus. The ECB and the BoJ have benchmark interest rates in the negative territory. Right now, real U.S. treasury yields are negative from five-year to 30-year term and this lowers the opportunity cost of holding a non-interest-bearing asset like bullion.
Stocks & ETFs in Focus
Against this backdrop, we highlight a few gold mining ETFs and stocks that appear healthy bets for Q2.
Newmont Corporation (NEM - Free Report)
It is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana. The stock has a Zacks Rank #2 (Buy). The stock has added more than 51% in the past month.
Alamos Gold Inc. (AGI - Free Report)
The Canadian-based intermediate gold producer with diversified production from three operating mines in North America also has a Zacks Rank #2. The stock is up about 77.8% in the past month.
VanEck Vectors Gold Miners ETF (GDX - Free Report)
The large-cap gold mining fund has gained about 63.4% in the past month against about 6% advancement in the S&P 500.
VanEck Vectors Junior Gold Miners ETF (GDXJ - Free Report)
The fund is focused on small-cap gold mining companies. The product has jumped 76.8% in the past month.
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