Gold Markets: Bullish Trends in First Quarter Performance
Gold prices gained in value during the first quarter even as upside moves were also tallied in the S&P 500 Index (NYSE: SPY), the NASDAQ Composite Index (NYSE: QQQ), and the Dow Jones Industrial Average Index (NYSE: DIA).
Each of these markets gained positive benefits from the Federal Reserve, as the central bank reversed its hawkish position near the beginning of the year. Further optimism came from progress in trade talks between China and the United States, and this helped push the markets higher during the quarter. Gold prices held steady even as investors saw reduced need for safe-haven assets.
Central drivers for the underlying price of gold in 2019 may develop as a result of the Federal Reserve’s changing tone and the market’s expectations for an extended decline in international growth rates. Negative sentiment that stems from a potential global slowdown has diminished investor concerns of higher interest rates. If these concerns persist (and if the yield curve remains inverted), demand for gold should continue to increase.
Performances from Gold Miners
One of the most popular exchange-traded funds is the VanEck Vectors Gold Miners Trust (NYSE: GDX), which rose by 6.3% in the first quarter of this year. Performances in gold mining stocks have varied widely during the period (depending largely their individual fourth-quarter valuation changes and the different company outlooks for 2019).
(Source: NASDAQ, NYSE)
In Q12019, each of the senior and intermediate gold miners saw bullish trends in their stock values, with the exception of IAMGOLD (NYSE: IAG). The stock dropped 5.7% during the quarter. In contrast, Eldorado Gold (NYSE: EGO) gained by the most in the group (at 60.8%).
Other key names in the industry include Goldcorp (NYSE: GG) and Yamana Gold (NYSE: AUY), which gained by 16.7% and 10.7%, respectively. Mid-level performances were generated by Agnico Eagle Mines (NYSE: AEM) and Kinross Gold (NYSE: KGC), which gained by 7.7%, 6.2%, respectively. Quarterly performances from Newmont Mining (NYSE: NEM) and Barrick Gold (NYSE: GOLD) lagged somewhat, but still posted gains 3.2%, and 1.3%, respectively.
Weaker Gains from Barrick Gold
Senior miner Barrick Gold (NYSE: GOLD) underperformed many of its peers and also lagged behind the performances of key exchange-traded funds NUGT and GDXJ in the first quarter of 2019. The underlying bullish trends in metals did help Barrick stock prices rise by 1.3% in the first quarter, while the benchmark fund GDX produced much more impressive returns (at 6.3%).
(Source: Barrick’s Quarterly Filings)
Disappointing stock trends from Barrick might prove to be short-lived, however, as the company’s fourth-quarter earnings results did beat analyst expectations. Earlier euphoria stemming from Barrick’s announced merger plans with Randgold Resources (which finalized on January 1st) may have reached a point of exhaustion, and profit-taking in bullish positions could be responsible for the weaker performances we have seen recently.
At the moment, analysts are waiting to see material earnings benefits from the proposed execution plans between the two companies. Once this occurs, the stock may have a chance to run higher. Recent guidance indicates potential gold production output of 5.1–5.6 million ounces in 2019 (which would be an increase of 18% year-over-year).
Barrick has reported lower production rates for eight straight years, but the company’s declining production profile could be helped by its deal with Randgold. Barrick’s production costs imply a potential rise of 11% in 2019 (when compared to company data from 2018).
In combination with Barrick’s weaker production guidance, the company also reported a year-over-year decline in its reserves of 3.4%. The average grade of the Barrick’s reserves was unchanged from 2017 (1.56 grams per ton). Barrick continues to maintain the highest grades in the industry (as Goldcorp, Kinross Gold, and Newmont Mining all have lower grades).
Five Gold Stocks Loved by Wall Street
Most of the time, gold mining stock work as a leveraged way of playing gold prices. In 2018, the VanEck Vectors Gold Miners fund dropped by 9.3%, in moved amplified by the 1.9% drop in gold prices.
The Direxion Daily Gold Miners Bull 3X fund (NYSE: NUGT) and the Direxion Daily Junior Gold Miners Bull 3X fund (NYSE: JNUG) saw dramatic price action that surpassed these trends by a large margin. In 2018, NUGT and JNUG weathered losses of 45% and 48%, respectively. Year-to-date in 2019, the benchmark fund GDX has gained 10.3%.
(Source: NYSE)
Of course, gold miners are impacted by company-specific issues in addition to gold’s price movements. So far, several company-specific factors have influenced the performances of the gold miners — and this will likely support prices as investors find out where to sell gold coins in 2019. Barrick Gold finished its planned merger with Randgold Resources in January, and it has also been influenced by problematic factors at its mines.
Similarly, Kinross Gold and Eldorado Gold experienced government interference and stresses after mining code changes. Newmont Mining also announced a merger with Goldcorp in January of this year.