2019 has been an eventful year for gold with prices having surpassed the $1,500 an ounce threshold during the third quarter, partly supported by global economic slowdown and trade spat between the United States and China. Although gold prices have seen some corrections lately, persistent economic uncertainties indicate that the rally is likely to continue in the near future.
Gold is widely considered as a hedge against adverse economic events. Uncertainties related to the United States-China trade talks and other geopolitical tensions have triggered demand for gold this year. Per reports, the signing of phase one agreement may be delayed as China insists on further rollback of tariffs. As such, the prospects of reaching a deal between the two countries before the year end are uncertain.
Also, interest rate cuts have partly contributed to the rally in gold prices. The Federal Reserve cut its benchmark rates for the third time in 2019 in October. The Federal Open Market Committee lowered the benchmark fund rate by 25 basis points to 1.5-1.75%. Notably, lower interest rates lead to lesser opportunity cost of holding non-yielding bullion that makes gold an attractive option for investors holding other currencies. However, the Fed has indicated that it may pause further rate cuts.
Moreover, concerns related to global economic growth still persists. Outlook for major sectors, including manufacturing and automotive remain challenging in the near term as the on-going trade spat between the United States and China doesn’t bode well for business sentiments. Moreover, the positive effects of tax cuts in 2017 have waned off. As such, there is a possibility that the momentum for gold prices will continue into 2020.
Goldman Sachs has also retained its bullish stance on the yellow metal last month. Per the investment bank, prices of gold per ounces may push to $1,600 in 2020.
As gold prices continue to rally, companies operating in this space — including Newmont Goldcorp Corporation NEM and Barrick Gold Corporation GOLD — are likely to benefit from improved financial performance.
Currently, the Zacks mining - gold industry carries a Zacks Industry Rank #66, which places it at the top 26% of more than 250 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.
The mining - gold industry has rallied 40.7% year to date compared with S&P 500’s 22.9% gain.
Our Key Picks
Despite the recent correction in gold prices, we believe that this is a good time for investors to add some fundamentally strong gold stocks to their portfolio.
We have employed our Zacks Screener to pick five top-ranked gold stocks as they have potential to outperform the broader market.
Kirkland Lake Gold Ltd. KL: This Toronto, Canada-based company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Earnings estimates for 2019 have moved up 13.6% in the past 60 days. The Zacks Consensus Estimate for 2019 earnings per share (EPS) suggests year-over-year growth of 97.1%. The company has an average positive earnings surprise history of 11.2% in the trailing four quarters. Shares of the company have surged 57.1% year to date.
Yamana Gold Inc. AUY: This Toronto-based company also sports a Zacks Rank #1. Earnings estimates for 2019 have moved up 71.4% in the past 60 days. The company has an average positive earnings surprise of 100% in the trailing four quarters. Shares of the company have surged 59.4% year to date.
Agnico Eagle Mines Limited AEM: The gold mining company, based in Toronto, currently carries a Zacks Rank #2 (Buy). Earnings estimates for 2019 have moved up 17.1% in the past 60 days. The Zacks Consensus Estimate for earnings for 2019 suggests year-over-year growth of 168.6%. The company has an average positive earnings surprise history of 245.9% in the trailing four quarters. Shares of this company have surged 51.8% year to date.
Franco-Nevada Corporation FNV: The company, also headquartered in Toronto, carries a Zacks Rank #2. Earnings estimates for 2019 have moved up 8.2% in the past 60 days. The Zacks Consensus Estimate for earnings calls for year-over-year rise of 46.2%. The company has an average positive earnings surprise of 11.8% in the trailing four quarters. Shares of this company have rallied 38.9% year to date.
Sibanye Gold Limited SBGL: This South-African gold mining company carries a Zacks Rank #2. Earnings estimates for 2019 have moved up 57.7% over the past 60 days. The Zacks Consensus Estimate for earnings indicates year-over-year improvement of 228.1%. Shares of this company have also rallied 205.3% year to date.
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Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
Newmont Goldcorp Corporation (NEM) : Free Stock Analysis Report
Franco-Nevada Corporation (FNV) : Free Stock Analysis Report
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
Sibanye Gold Limited (SBGL) : Free Stock Analysis Report
Yamana Gold Inc. (AUY) : Free Stock Analysis Report
Kirkland Lake Gold Ltd. (KL) : Free Stock Analysis Report
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