Gold has been the best performing asset this year, outperforming major equity indices, investment grade and high yield bonds and commodity indices. Let’s dig into some of the major factors that have triggered the recent spurt in gold prices.
‘Brexit’ Jolts Markets, Sends Gold Soaring
Gold prices rallied to their highest level in two years to cross the $1,300 per troy ounce barrier on Friday after Britain voted to leave the European Union (EU), sending tremors through global stock markets. The outcome from the historic EU referendum (that saw the ‘Leave’ side winning 52% of the vote) spurred safe-haven buying as investors fret that ‘Brexit’ will bring instability to Europe and catapult turmoil across the globe, leading to as much as 5.5% spike in gold prices.
Britain’s FTSE 100 dropped more than 8%, Germany’s DAX slid as much as 10%, France’s CAC tumbled around 8% while Japan’s Nikkei 225 plummeted more than 7%. U.S. stock index futures also took a tumble with S&P 500 and Nasdaq both losing more than 5% while Dow futures falling 3.7%.
The British pound also got hammered, tumbling around 10% against the U.S. dollar, to its lowest level since 1985. Traders panicked about a potential damage to the global economy and fled to traditional safe haven assets, especially gold.
Fed Keeps Rates Steady
Gold prices got a lift earlier this month (rising to a six-week high) after the U.S. Federal Reserve maintained its dovish stance, leaving benchmark interest rates steady in the band of 0.25%-0.50%. The central bank cited a sharp drop in U.S. hiring in May that raised doubts about the strength of the labor market as well as the health of the U.S. economy.
While the Fed said that it still plans two rate increases in 2016, it signaled a slower pace of hikes in the coming years. The central bank gave no clues on timing of the next hike and indicated that it needs a clearer economic picture before increasing rates again.
A delay in raising interest rates elevates demand for gold, which produces no income but relies on price appreciation to lure investors. On the other hand, a hike in interest rates tends to boost returns from income generating assets and thus hits non-yielding commodities, including gold. A low interest rate environment augurs well for gold.
Gold prices should also get support from retail demand in the latter part of 2016, which is seasonally strong for top consumers like India and China. Another factor that will eventually act in favor of gold is that the supply of the metal has already reached peak levels as per reports. Lower gold prices in the past few years and cost pressure had restricted the ability of gold producers to invest in new projects. Production of gold is likely to decline by 3% in 2016, thus ending a seven-year stint of rising output. Lower mined gold supply could help prices navigate north.
5 Growth Picks
Amid this favorable scenario, it would be a prudent idea to zero in on some gold mining stocks that are well-placed to leverage the recent rebound in the gold market and are good options for investment right now. Our selection is backed by a good Zacks Growth Style Score and Zacks Rank.
We narrowed down our choices with the help of our new style score system.
Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
B2Gold Corp. BTG
Vancouver, Canada-based B2Gold explores and develops mineral properties in Nicaragua, the Philippines, Namibia, Burkina Faso and Chile. The company primarily explores for gold, silver and copper.
The stock holds a Zacks Rank #1 and has a Growth Style Score of ‘A’. The company has expected earnings growth of a whopping 700% for the current year. B2Gold has also seen its shares shoot up around 114% year to date.
Golden Star Resources, Ltd. GSS
Canada-based Golden Star owns and operates gold mines in Ghana as well as other parts of the world.
The stock sports a Zacks Rank #1 and has a Growth Style Score of ‘A.’ The company has expected earnings growth of around 104% for the current year. Its shares have skyrocketed roughly 256% so far this year.
IAMGOLD Corp. IAG
Toronto-based IAMGOLD is engaged in the exploration, development and operation of gold mining properties. It also explores for copper and silver. The company holds interests in four operating gold mines, as well as exploration and development projects located in Africa, South America and Canada.
IAMGOLD holds a Zacks Rank #2 and sports a Growth Style Score of ‘B.’ The company has expected earnings growth of around 66% for the current year. Moreover, the stock has gained roughly 182% so far this year.
Sandstorm Gold Ltd. SAND
Vancouver-based Sandstorm Gold concentrates on completing gold purchase agreements with gold mining companies that have advanced stage development projects or operating mines.
Sandstorm Gold holds a Zacks Rank #2 and sports a Growth Style Score of ‘B.’ The company has expected earnings growth of around 115% for the current year. The stock has also gained 70% year to date.
Harmony Gold Mining Company Ltd. HMY
South Africa-based Harmony conducts underground and surface gold mining and is also engaged in related activities such as exploration, processing, smelting and refining.
The stock has a Zacks Rank #2 and sports a Growth Style Score of ‘B.’ The company has expected earnings growth of 225% for the current year. Harmony has seen its shares surge roughly 260% year to date.
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