Gold futures for April 2021 delivery declined to a nine-month low of $1,673.30 per ounce on Mar 8. The yellow metal has lost 11% of its value so far this year due to an uptrend in the U.S dollar and treasury yields. Vaccine rollouts and strong optimism over economic recovery have also dulled its lustre.
Gold prices dropped 6.5% in February — the largest monthly decline in four years. Per the last available data from World Gold Council, Gold exchange-traded funds (ETF) lost 84.7 tons (outflow of $4.6 billion) in February. This marked outflows for the third time in four months, and the seventh worst monthly holdings loss historically. Global assets under management (AUM) now stand at 3,681 tons ($207 billion) — levels last seen in June 2020.
North American funds primarily drove the outflows at 71.2 tons ($4.1 billion) as momentum trading impacted larger funds in North America. European funds saw outflows of 23.8 tons ($1.1 billion), mainly from UK funds. Asia was the only region to witness an inflow of 10.6 tons ($596 million) owing to Chinese and Indian listed funds. Funds in other regions reported outflows of -0.3 tons ($27 million).
Gold had gained in 2020 mainly on account of its safe haven demand stemming from the uncertainty triggered by the COVID-19 pandemic and low interest rates. In fact, the yellow metal yielded a 24.6% gain in 2020 and outperformed other major asset classes. However, as rates have moved higher in 2021, gold prices have changed course. Also, the 10-year U.S. Treasury yield rate touched 13-month highs of 1.6% on Mar 8, after the Senate passed a $1.9 trillion coronavirus economic relief and stimulus bill. Of late, treasury yields have been rising higher rapidly amid expectations of economic recovery and concerns regarding a rise in inflation. As rates move higher, the yields on bonds become more attractive, which does not bode well for gold.
While higher interest rates may continue to impede gold’s performance in the near term, inflation expectations are likely to move higher, which will support the yellow metal. Historically, gold has performed well in high inflationary environments. Further, economic recovery in China will lead to higher demand for the yellow metal. Also, India remarkably received healthy monsoon rainfall for the second straight year. Around 60% of the gold demand in the country is tied to the rural populace, which depends on monsoon. This could help counter the negative impact of COVID-19 in rural areas. It is worth mentioning that historically, gold demand in India has been high in the later part 2020 courtesy of the wedding and festive seasons, when buying the yellow metal is considered auspicious. Central banks also continue to buy gold. Thus, demand for gold is likely to improve this year.
Mine production is expected to recover this year following the pandemic induced shutdowns in the earlier part of last year. Although pandemic-related uncertainty still lingers in 2021, production is unlikely to be impacted as last year as major companies have introduced protocols and procedures that should reduce the impact of stoppages compared to those seen in the early stages of the pandemic.
Due to lower gold prices, the Zacks
Gold Mining
industry has declined 12.5% year to date against the S&P 500’s growth of 2.9%. The industry falls under the broader
Basic Materials
sector that gained 6.7%.
The gold mining industry currently carries a
Zacks Industry Rank
#165, which places it at the bottom 3% 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.
Despite the bleak near-term prospects, we suggest three top-ranked gold stocks that one can buy given their growth prospects.
3 Gold Stocks to Bet on
Gold Fields Limited
GFI
: Based in Sandton, South Africa, Gold Fields operates as a gold producer with reserves and resources in Chile, South Africa, Ghana, Australia, and Peru. The Gruyere mine is starting to hit its targets in 2020 and is expected to deliver a strong performance in 2021. The Damang mine is anticipated to have a good couple years ahead. The South Deep mine is expected to record a strong increase this year and the company expects to increase production by 20-30% over the next three to four years. The Salares Norte project remains on schedule and production is expected in first-quarter 2023. At Tarkwa, the company’s exploration activities are starting to yield results and future prospects look alluring. Backed by its strong cash generation, the company continues to lower its debt levels, which is commendable.
The Zacks Consensus Estimate for the company’s current year earnings has moved up 9.5% over the past 90 days. The company has an estimated long-term earnings growth of 37.4%. The company currently carries a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Novagold Resources Inc.
NG
: Based in Vancouver, Canada, NovaGold explores for and develops gold mineral properties in the United States. Novagold and
Barrick Gold Corporation
GOLD
have completed a comprehensive drill program, the largest of its kind in 12 years, at their jointly owned Donlin Gold project. Results so far have exceeded expectations. The Donlin Gold Project is positioned to be one of the world’s largest gold mines with expected output of 1.1 million ounces per year. Donlin Gold is a rare gold project that combines the attributes of extraordinary size, a high-grade open pit endowment and the adavnatage of being located in a mining-friendly jurisdiction in Alaska. With a strong balance sheet, Novagold is well-poised to fund its share of permitting and optimization advancement efforts at the Donlin Gold project.
The Zacks Consensus Estimate for the company’s current year earnings indicates year-over-year growth of 10%. The estimate has moved up 18% over the past 90 days. The company currently has a Zacks Rank #2.
Harmony Gold Mining Company Limited
HMY
: Headquartered in Randfontein, South Africa, Harmony Gold Mining engages in the exploration, extraction, and processing of gold in South Africa and Papua New Guinea. The company’s development projects currently in progress includes the development of the Wafi-Golpu, a copper/gold deposit in Papua New Guinea, which received the environment permit in late 2020. The company’s efforts to reduce its debt levels remain commendable.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings is currently pegged at $1.23, indicating a turnaround from a loss of 10 cents reported in the prior fiscal. The estimate has moved up 88% over the past 90 days. The company has an estimated long-term earnings growth of 7.9%. The company currently carries a Zacks Rank #2.
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