Gold futures for August delivery rose 1.1% and closed at $1,800.50 an ounce on Jun 30 — the highest for a most-active contract since November 2011. With this the yellow metal has registered a gain of 12.6% in second-quarter 2020 — the best quarterly advance in four years.
Yielding a return of 17% so far this year, gold has outperformed all major asset classes. The coronavirus pandemic and its devastating impact on the global economy, and the unprecedented monetary and fiscal stimulus in response to the same have been the primary catalysts driving the gold prices. The low interest rates scenario make stocks, government bonds and other investments less appealing, making investors opt for gold. The civil unrest in the United States, geopolitical tensions and the U.S.-China trade spat have also significantly contributed to the price movement so far.
The coronavirus pandemic seems to be a long way from being over. Per the World Health Organization, the global death tally has crossed the 500,000 mark and confirmed cases have exceeded 10 million. The United States reported more than 48,000 new cases on Jun 30, with eight states announcing single-day highs. This is the highest one day spike since the pandemic struck.
Dr. Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases, cautioned that the United States could record as many as 100,000 new cases and the death toll “is going to be very disturbing” if the situation is managed properly. The current number of coronavirus case in the United States stands at 2.68 million with the death toll at 129,000. Some states that had lifted restrictions and reopened businesses have witnessed surge in COVID-19 cases. Few states have been compelled to reconsider their reopening efforts or postponing next steps, stoking apprehensions that this is likely to put a brake on the much anticipated economic recovery.
Per the International Monetary Fund (IMF), the economic recovery is likely to be slow and it expects a contraction of 4.9% in global economy in 2020 — wider than the contraction of 3% estimated in April. The United States is expected to shrink 8% this year — its worst contraction since 1946. Thus, the uncertainty regarding the impact on the global economy will continue to trigger safe haven demand for gold. Meanwhile due to mine shutdowns on account of the pandemic, gold production is expected to be low this year. The demand-supply imbalance will drive gold prices this year.
Industry Performance
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The Gold Mining industry has gained 25.9% year to date, against the S&P 500’s decline of 5.2%. The industry falls under the broader Basic Material sector, which fell 9.8%. Northern Dynasty Minerals, Ltd. NAK and DRDGOLD Limited DRD have been the major gainers in the industry with a year-to-date price gain of 234% and 208%, respectively.
The gold mining industry currently carries a Zacks Industry Rank #76, which places it at the top 30% 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.
Gold miners are poised for a strong performance in their upcoming second-quarter releases, as higher gold prices will boost top-line performance while lower oil prices (which is around 50% of their production costs) will aid margins. Sandstorm Gold Ltd SAND, Agnico Eagle Mines Limited AEM and Galiano Gold Inc. GAU are worth mentioning with their Zacks Consensus Estimate for second-quarter earnings indicate year-over-year growth of 200%, 80% and 67%, respectively.
These companies are also poised to carry the momentum in their full-year results as evident from the full-year projections. The fiscal year earnings estimates for Sandstorm Gold, Agnico Eagle Mines and Galiano Gold indicate year-over-year growth of 56%, 54% and 1200%, respectively.
While Galiano Gold sports a Zacks Rank #1 (Strong Buy), Agnico Eagle Mines and Sandstorm Gold carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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