Gold Prices Dip to 2-Month Low on Stronger Dollar: What Next?

Gold futures for December delivery dipped 2% and closed at $1,868.40 per ounce on Sep 23 — the lowest level in nearly two months on a stronger dollar. Dollar was supported by a positive U.S economic data and concerns over surging coronavirus infections in Europe.

The IHS Markit US Manufacturing PMI for September 2020 increased to 53.5 from 53.1 in August, beating forecast of 53.1. This is the strongest expansion in factory activity since January 2019, aided by increase in new orders and the resumption of operations. Also, the U.S economy added 1.4 million jobs in August compared with the 1.7 million reported in July and a record high of 4.8 million in June. The unemployment rate fell to 8.4% in August, reflecting declines for four consecutive months. More than 22 million jobs were lost in March and April owing to the pandemic. These improvements in the job market reflect the continued resumption of economic activity.

Gold Has Not Lost Sheen

Demand Remains High: Notwithstanding this dip, gold prices have gained 19.6% so far this year on the back of high level of uncertainty stemming from the COVID-19 pandemic. Gold prices had touched an all-time high of $2,089.20 per ounce on Aug 7. Investors’ appetite for the precious metal amid the COVID-19 crisis remains high. Global gold-backed exchange-traded funds (ETF) reported inflows for nine consecutive months in August with year-to-date inflows of 938 tons or $51.2 billion, per the World Gold Council. The performance trumps both the previous highs of annual inflow in tonnage terms (646 tons attained in 2009) and dollar value terms ($23 billion in 2016).
 
Supply at Risk: The pandemic has impacted gold production as miners had to suspend operations in accordance to government mandates. Per the last available data from the World Gold Council, gold production in the first half of 2020 declined 5% year over year — the lowest first half level since 2014. Consequently, the impending demand-supply imbalance situation will work in favor of the yellow metal’s prices.

Uncertainty Over U.S Elections, COVID-19: Gold will continue to be the preferred investment option courtesy of the low interest-rate environment, the pandemic-induced global slowdown and political uncertainties. Federal Reserve chair Jerome Powell said he does not see interest rates rising above zero for many years, possibly until 2023 and beyond. Further, the Fed has categorically mentioned that interest rates won’t be increased until labor market has recovered and inflation picks up to 2% and is on track to moderately exceed 2% for some time.

Further, uncertainty over the upcoming U.S presidential election will boost safe haven demand for the yellow metal. Resurgence in COVID-19 cases in Europe has prompted governments to renew lockdown measures in some countries, thus clouding the recovery outlook. The coronavirus death toll in the United States has topped the 200,000 mark. This, in turn, will bolster appeal of gold.

On the back of the gold-price rally, the Gold Mining industry has rallied 40.5% year to date, outperforming the S&P 500’s growth of 2.9%. The industry falls under the broader Basic Material sector, which declined 0.5%.

The gold mining industry currently carries a Zacks Industry Rank #112, which places it at the top 45% 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.

We believe the time is right for investors to add some gold stocks to their portfolio.  We have employed the Zacks Screener to pick five top-ranked gold stocks which have solid earnings growth projections for this year.

5 Gold Stocks to Bet on

AngloGold Ashanti Limited AU: The Zacks Consensus Estimate for 2020 earnings of this Johannesburg, South Africa- based company earnings indicates year-over-year improvement of 124%. The estimates have been revised upward by 7% over the past 60 days. The company has a long-term estimated earnings growth rate of 25.6%. The stock has gained 11% so far this year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Yamana Gold Inc. AUY: Based in Toronto, Canada, the company presently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings suggests year-over-year growth of 77%. The estimates have gone up 15% over the past 60 days. The company has a trailing four-quarter earnings surprise of 81.3%, on average. The stock has gained 36% so far this year.

Pretium Resources Inc. PVG: This Vancouver, Canada based company has a Zacks Rank #2 currently. The Zacks Consensus Estimate for the current fiscal-year earnings suggests year-over-year growth of 20%. The company has a trailing four-quarter earnings surprise of 31.7%, on average. The stock has appreciated 10% year to date.

Barrick Gold Corporation GOLD: This Toronto, Canada based company has a long term estimated earnings growth rate of 2% and a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2020 earnings indicates year-over-year growth of 80.4%. The estimates have been revised upward by 5% over the past 60 days. It has a trailing four-quarter earnings surprise of 23.1%, on average. The stock has appreciated 46% so far this year.

Galiano Gold Inc. GAU:  The company, which was formerly known as Asanko Gold Inc., changed its name to Galiano Gold Inc. in May 2020. Headquartered in Vancouver, Canada, the company currently carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings indicates year-over-year growth of 1800%. The estimates have been revised upward by 46% over the past 60 days. The company has a trailing four-quarter earnings surprise of 125%, on average.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.