Gold Stocks Are Outpacing The Market: Some Names To Consider

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Includes: AU, AUY, DRD, EGO, GOLD, HMY, IAG, NC, TRX
by: Small Cap Reporter
Summary

Gold has outpaced the broader markets since the end of May.

Powell's latest statements suggest a dovish Fed policy ahead and signal a slowing economic outlook.

The CME FedWatch is pricing in a high likelihood for a rate cut in July.

Considering these conditions, it's probable to see gold stocks become a key focus in the market as a safe haven.

For the last 45 days, gold stocks have been outperforming the broader markets and it has caught more attention in July. In fact, compared to both the PowerShares QQQ Trust (QQQ) and the SPDR S&P 500 ETF Trust (SPY), some of the top gold ETFs have jumped up by double (or more).

I took a snippet of time from May 30th until this week (7/10) and the results are compelling. During this time period, both the SPY and QQQ topped out gains between 7%-9%; a formidable return in such a short period of time. This is especially considering the boost the markets received following Fed Chair Powells comments that suggest a dovish Fed (for now).

But compared to gold stocks, the gains are less. When taking a closer look at gold ETFs like the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU), the ETFs returned roughly 12% since May 30th. Meanwhile, the VanEck Vectors Gold Miners ETF (GDX) took home a return of 28% during that same period.

ETF Comparison As far as individual gold penny stocks are concerned, the gains since May 30th have been much greater. Most of these big moves have been realized from some of the smaller cap gold stocks that investors are buying. But why are gold stocks making this move right now?

Gold Stocks To Watch

It’s the old adage when the market is in disarray investors turn to “safe haven stocks.” These are, traditionally, stocks that retain or increase in value during times of turbulence. Some examples include healthcare stocks, biotech stocks, Treasury bills, and even cash. But one of the most popular safe haven investments continues to be gold.

Because it’s a physical commodity, it can’t be easily reproduced like paper currency and its value can act as an insurance policy when the global economy starts to see volatility. When it comes to some of the top-performing gold stocks, these companies will often have exposure to the mining of the actual commodity itself.

Over the last 60 days, the spot price of gold (per ounce) has been on the rise and has recently marked new 5-year highs. This being the case, it’s no wonder why gold stocks have followed the same path.

Spot price of gold Some of the top gold stocks have returned upward of 85% since May 30th:

Barrick Gold Corporation (GOLD)

Market Cap: $28.93B

Performance Since May 30th: +41% (High of $16.56 on July 10)

The largest market cap gold stock on this list, Barrick has seen a steady rise since May 30. Shares traded under $12 to kick start the month of June and have since seen highs of $16.56. Some of the excitement surrounding this gold stock has to do with chatter about the company's gold project in Senegal. Apparently, Barrick is working with advisers to find a buyer in a deal that could value the property at roughly $500 million.

Something to also keep in mind is that the gold company is also planning to takeover Acacia Mining. This is according to a Financial Times report. The miner offered to buy 36.1% of Acacia that it doesn’t already own with the hopes of settling a tax dispute with the government in Tanzania. But it appears that the initial bid wasn’t that appealing to Acacia shareholders.

Nevertheless, analyst sentiment remains favorable for the company. Earlier this month, BMO Capital raised the gold stock to Outperform and put a new price target of $20. This was up from just $14.50 per share with its previous target.

Yamana Gold Inc. (AUY)

Market Cap: $2.48B

Performance Since May 30th: +46% (High of $2.63 on July 10)

This Canadian-based gold producer has attracted some attention during recent weeks but not for the reasons that you would think. Yamana has certainly benefited from the rise in gold prices but for this gold stock, concerns have risen with regard to its fundamental strength. Over recent weeks, the company has seen a severe shakeup in its board. Additionally, some analysts from Raymond James and TD Securities have been unimpressed by some of the bigger news from the company.

Needless to say, Yamana has garnered favorable interest from analysts at National Bank who raised targets to $4.25 from $4 and further increased its rating to “Outperform.” It doesn’t seem unwarranted, as Yamana has been working to streamline the business in efforts to improve effectiveness and decrease overhead. The company has further upped its three-year production guidance for its Jacobina mine and further undertaken plans to improve the strategic life of the mine. The company continues to increase its guidance for the second half of 2019 as well. This came after second quarter production was reported at more than 257,000 gold equivalent ounces.

AngloGold Ashanti Limited (AU)

Market Cap: $7.61B

Performance Since May 30th: +53% (High of $18.43 on July 10)

AU stock has rallied since the end of May and with it has come a series of related analyst upgrades and price target increases. BMO gave AngloGold an “Outperform” rating and inched its price target up from $16 to $21/share. RBC also pushed its target to $21.28 and upped its rating to Outperform as well.

Progress following AngloGold’s payment of $300k to Renaissance Gold as well as expecting strong earnings growth helped push prices higher. It is also important to note that it is the largest gold producer at 7 million ounces a year, with reserves of 126 million ounces.

Harmony Gold Mining (HMY)

Market Cap: $1.26B

Performance Since May 30th: +54% (High of $2.48 on July 10)

Shares of the gold mining company have followed gold’s price increase over the last few weeks. Harmony mainly focuses on South Africa while also operating in Papua New Guinea. Included in its holdings are one open-pit mine, 9 underground mines, and several surface operations.

Harmony reported favorable operating results in its last mining update. Those included an underground-recovered grade that was 6% higher than the same period in the previous year. Additionally, Harmony reported an increase in gold production of 29%. That equated to more than 33,600kg. As the price of gold continues to hover around 5-year highs, make no mistake that gold stocks with direct exposure to mining could greatly benefit from new highs in the commodity’s spot price.

Tanzanian Gold Corporation (TRX)

Market Cap: $145.04M

Performance Since May 30th: +88% (High of $1.20 on July 10)

The smallest gold stock on this list based on the market cap is Tanzanian Gold. But this gold stock is one of the biggest movers since May 30th. Not only has the company been actively raising capital but it has also shown strong progress from its recent drilling initiatives.

According to reports from the company, during its Phase II to identify gold mineralization, Tanzanian encountered significant mineralized widths that include high-grade intersections. The holes drilled were in the range of 50 to 200m below the pit bottom of an open pit. With this new data, Tanzanian should now be able to start putting together a program for Phase III.

Unfortunately, the gold penny stock was hit hard after reaching its July high of $1.20 on July 10th. No market chatter seemed to be out as a potential catalyst for this move, however.

Eldorado Gold Corporation (EGO)

Market Cap: $1.087B

Performance Since May 30th: +97% (High of $6.85 on July 10)

The final gold stock on this list is Eldorado Gold Corp. The latest 85% move in the gold stock price has been helped by several catalysts including the overall move in the sector. In addition to that, however, Eldorado has benefited from key analyst upgrades as well as favorable results coming from the company’s 7th annual sustainability report.

Key factors contributing to Eldorado’s growth include increased gold production. In 2018, the company produced over 349,000 oz of gold, which was more than 50,000 more ounces than in 2017. Furthermore, revenue increased above both 2016 ($432.7M) and 2017 ($391.4M) to $459M for 2019. Preliminary Q2 results also show that the company is on target to meet its annual guidance of up to 420,000 ounces of gold. Eldorado reported total gold production of nearly 92,000 ounces in the second quarter and nearly double that on a year to date basis.

Lower rates tend to signal a slowing economic outlook, which helps push the focus toward safe-haven stocks. Considering that the CME FedWatch Tool is pricing in a high probability of a rate cut this month, chances are that gold stocks could continue to surge with the likes of Eldorado benefiting from such robust gold production.

top performing gold stocks Other gold stocks not mentioned in further detail but are of note include DRDGOLD Limited (DRD), IAMGOLD (IAG), and NovaGold Resources (NG).

The Future For Gold Stocks

Tepid global economic data continue to suggest a bullish case for gold. Non-farm jobs figures, China PMI and the business climate for countries like Germany could point to a slowing economy. This would help the stance on safe-haven stocks. Furthermore, if the Fed sticks to a plan that would involve more rate cuts, there could be even brighter days ahead for the yellow metal.

"Growth still remains weak globally and we have geopolitical tension between the US and Iran,” said Howie Lee, an economist at OCBC Bank in Singapore, to Reuters. “Additionally, $1,400 is a pretty strong support level for gold. We are still in a rate easing cycle right now. Overall factors are still supportive of higher gold prices.”

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.