The global economy is set to remain coronavirus-stricken this year. As the U.S. economy is facing the second wave of coronavirus infections that is threatening to derail the much-hyped V-shaped recovery in the second half of this year, market participants are gradually shifting to safe-haven assets. Meanwhile, gold has turned as the most-favored, safe-haven among investors.
Consequently, on Jul 27, spot gold price touched as high as 19,43.93 per ounce, outpacing the previous all-time high set in September 2011. Moreover, the gold future for August delivery touched $1,936.60, surpassing the previous record high scored in August 2011. Year to date, gold price has rallied 27.2%, eclipsing all three major stock indexes.
Resurgence of Coronavirus
All 50 states of the United States have opened their economies in some form since the last week of May after two months of lockdowns. However, within a month’s time most of the states have been forced to reclose as new cases of coronavirus jumped in as many as 24 states.
Bank of America reported that air traffic processed through TSA security lines fell during the week ended Jul 20, compared with the prior week. Per Opentable, restaurant reservation declined in the past month. According to Cowen, retail footfall fell significantly in July. Jefferies reported that the percentage of closed small businesses in July from June.
Accommodative Monetary Policies
Almost all central banks are pursuing easy monetary policies in order to inject more liquidity into the system. The Fed has reduced the benchmark interest rate to zero and intends to maintain 0% interest rate and asset buyback programs till 2022. The ECB and the Bank of Japan are maintaining a negative interest rate policy for a long time.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other assets. Moreover, globally, major central banks have strengthened their quantitative easing programs. Low interest rate and higher money supply will depreciate the value of currencies of these countries.
Price Movement of Other Safe-Haven Assets
On Jul 24, yield of 10-year U.S. Treasury Note settled at 0.584% — its lowest since Apr 21. The yield on the benchmark government bond fell sharply as investors opted more for this asset. Declining yield on government securities goes well the price of yellow metal as it a non-interest bearing asset.
The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of six major currencies, tumbled more than 6% in the past three months. A weak U.S. dollar has increased demand for dollar-denominated bullions like gold.
U.S.- China Tensions Heighten
The lingering economic and geo-political conflicts between the United States and China have intensified recently. On Jul 23, U.S. Secretary of State Mike Pompeo slammed China over international abuses warning the Asian economic giant that United Sates will no longer tolerate China’s double standard.
On Jul 22, The U.S. government has instructed China to close its consulate in Houston, citing that it was used for spying purposes. China retaliated asking the United States to close its consulate in Chengdu. The U.S. government has already imposed trade sanctions on 11 major Chinese companies on account of violating human rights in China.
On Jul 21, the Department of Justice indicted two Chinese hackers of stealing trade secrets and trying to steal research on potential drugs for coronavirus treatment.
Our Top Picks
At this stage, it will be prudent to invest in gold stocks with strong growth potential. We have narrowed down our search to five such stocks that popped in the past six months. Each of these stocks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past six months.
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Royal Gold Inc. RGLD acquires and manages precious metals stream and royalty interests, with a primary focus on gold. The Zacks Rank #1 company has expected earnings growth of 57.3% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 7 days. The stock price has surged 19.3% in the past six months.
Gold Fields Ltd. GFI is one of the world’s largest unhedged gold producers with operating mines in South Africa, Ghana and Australia. The Zacks Rank #2 company has an expected earnings growth rate of 35.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 5.6% over the last 30 days. The stock price has soared 96.5% in the past six months.
Kinross Gold Corp. KGC is engaged in the acquisition, exploration, and development of gold properties in the United States, Russia, Brazil, Chile, Ghana and Mauritania. The Zacks Rank #2 company has expected earnings growth of 85.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 8.6% over the last 60 days. The stock price has jumped 71.5% in the past month.
Equinox Gold Corp. EQX is engaged in the acquisition, exploration and development of mineral deposits. It primarily explores for gold, copper and silver deposits. The Zacks Rank #2 company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by more than 100% over the last 7 days. The stock price has rallied 38.9% year to date.
Eldorado Gold Corp. EGO is engaged in the exploration, discovery, acquisition, financing, development, production, sale and reclamation of mineral products primarily in Turkey, Canada, Greece, Brazil and Romania. It produces gold, as well as silver, lead, zinc, and iron ore.
The Zacks Rank #2 company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by more than 10.4% over the last 7 days. The stock price has climbed 62.8% in the past six months.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
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