Gold Rebounds on US Inflation Data: 4 Stocks to Watch

Gold prices have rebounded on government data showing a slightly higher-than-expected reading on U.S. inflation. This bolstered bullion’s appeal as an inflation hedge and put pressure on the dollar. Further, Food and Drug Administration’s recommendation to states to pause the use of Johnson & Johnson's coronavirus vaccine after six cases of blood clots, fueled the safe-haven demand for the metal and propped up prices. Spot gold gained 0.5% to $1,744.80 an ounce on Apr 12 and gold futures for June delivery advanced 0.87% to $1,746.20.

Per the U.S. Bureau of Labor Statistics, the consumer-price index rose 0.6% — the biggest rise since August 2012. It followed an increase of 0.4% in February and came ahead of the consensus of a rise of 0.5%. For 12 months ending March 2021, the inflation rate in the United States accelerated to 2.6%, higher than the 1.7% in February and above the market consensus of 2.5%. It was also the highest since August 2018.

The US Dollar Index lost 0.33% to 91.844 on Apr 13 on this higher-than-expected figures. The US 10-year bond yields remains at 1.63%, near three-week lows of 1.618%. After reaching 14-month highs of 1.78% in March, treasury yields have been declining this month on encouraging economic data from the United States and concerns over a spike in inflation.

Overall, the yellow metal has lost 8% of its value so far this year due to vaccine rollouts and optimism over economic recovery. Global gold ETFs lost 107.5 tons ($5.9 billion) in March, marking outflows for the second month in a row in which net outflows ranked the top 10 worst outflows historically. In the first quarter of 2021, global gold ETFs lost 177.9 tons ($9.5 billion). As of the quarter-end, global assets under management (AUM) stand at 3,574 tons ($194.5 billion) — at levels last seen in June 2020. Since the peak attained in November 2020, gold ETF holdings have declined 9% in tonnage terms, at par with the drop in gold price.

During the quarter, North American funds represented 86% of global net outflows, falling 145.4 tons ($8.1 billion). European funds lost 51.7 tons ($2.5 billion) during the quarter. The bright spot was Asian-listed funds, which collectively added 17.8 tons ($1 billion), driven by China, India, and Japan. This was primarily due to opportunistic “dip buying” during gold price weakness.

Going forward, India and China (that roughly account for around 50% of consumer gold demand), will sustain demand for the yellow metal. The ongoing economic recovery in China will lead to higher demand for the yellow metal. Gold demand in India is seasonally 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 again 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. Inflation expectations are likely to move higher, which will support the yellow metal. Historically, gold has performed well in high inflationary environments.

The Zacks Gold Mining industry has gained 5.8% year to date compared with the S&P 500’s rally of 4.5%. The industry falls under the broader Basic Materials sector that gained 1.9%.

The gold mining industry currently carries a Zacks Industry Rank #229, which places it at the bottom 10% 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.

Per the latest Earnings Trends, after remaining in the red for the past four quarters, the Basic Materials sector returned to growth with an earnings improvement of 28.1% in fourth-quarter 2020. The sector is expected to witness growth of 65.8% in earnings in first-quarter 2020, followed by 162.7%, 49.4% and 12.3% in the second, third and fourth quarters, respectively. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 58.8%.

We have handpicked four gold stocks that are likely to deliver improved earnings performance in their upcoming Q1 results. All the five stocks have a Zacks Rank # 3 (Hold) and a VGM Score of A or B. Our research shows that stocks with such a combination offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Barrick Gold Corp GOLD: Headquartered in Toronto, Canada, Barrick Gold engages in the exploration, mine development, production, and sale of gold and copper properties.

The company is expected to gain from progress of its key growth projects that are likely to contribute to its production. Barrick Gold has a strong liquidity position and generates healthy cash flows, which positions it well to take advantage of attractive development, exploration and acquisition opportunities. The company should gain from its merger with Randgold, which formed an industry-leading gold company and fortified its position among senior gold peers. Further, it is close to finalizing an agreement with the Papua New Guinea government to reopen the Porgera gold mine. Porgera churned out about 600,000 ounces of gold in 2019 before being put on care and maintenance.

The company has a long-term estimated earnings growth rate of 2%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 7.8%. The stock has a Zacks Rank #3 and a VGM Score of A. The company has a trailing four-quarter earnings surprise of 15.5%, on average.

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 include the development of the Wafi-Golpu, a copper/gold deposit in Papua New Guinea, which received the environment permit in late 2020 and is expected to increase production. The Golpu project is believed to be a game changer for the company. According to the company, Golpu is a promising orebody that contains mineral resources of 20 million ounces of gold and 9.4 million tons of copper. Further, its efforts to reduce debt levels remain commendable.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings is currently pegged at 69 cents, suggesting a turnaround from a loss of 10 cents reported in the prior fiscal. The company has an estimated long-term earnings growth of 7.9%. The company currently has a Zacks Rank #3 and a VGM Score of B.

IAMGOLD Corporation IAG: Headquartered in Toronto, Canada, IAMGOLD Corporation explores for, develops, and operates gold mining properties in North and South America, and West Africa.

The company’s strong liquidity position continues to provide security and financial flexibility. IAMGOLD's transformational strategy centres on delivering the lower cost Côté Gold Project, de-risking the Boto Gold Project, optimizing its current operations and continuing to invest in its pipeline of brownfield and greenfield exploration. Robust development and exploration pipeline supports attractive and profitable long-term growth to over one million ounces of annual production in the coming years.

The company has a long-term estimated earnings growth rate of 3%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 79%. The stock has a Zacks Rank #3 and a VGM Score of A.

New Gold Inc. NGD: Headquartered in Toronto, Canada, New Gold is an intermediate gold mining company, which engages in the development and operation of mineral properties.

New Gold will benefit from higher production levels at Rainy River Mine, at lower costs, as deferred capital projects have been completed and the mine transitions to generating free cash flow. The New Afton mine continues to ramp- up production. Moreover, the company remains committed to operational and cost optimizations at both Rainy River and New Afton, launching B3 production, advancing C-Zone development at New Afton, and following up on key targets from the exploration drilling programs.

The company has a long-term estimated earnings growth rate of 5%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings indicates year-over-year growth of 667%. The stock has a Zacks Rank #3 and a VGM Score of B.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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