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Geopolitical Uncertainty: Which Gold Stocks Are Analysts Playing?

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Geopolitical Uncertainty: Which Gold Stocks Are Analysts Playing? PART 1 OF 11

Geopolitical Uncertainty: Which Gold Stocks Are Analysts Playing?

Gold’s performance in 1Q17

This year began on a positive note for gold and miners, especially after an unexpectedly poor 4Q16. In fact, November 2016 was the worst month for gold prices since June 2013. In one month alone, the price of gold fell 8.0%. Before the US elections in November 2016, gold had risen ~20.0% YTD (year-to-date). The Federal Reserve’s rate hike expectations and Donald Trump’s presidential victory took most of precious metals’ gains at the end of the year.

Geopolitical Uncertainty: Which Gold Stocks Are Analysts Playing?

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But now, gold prices have rallied 8.5%. The broader market (SPY) (SPX) rose 5.5% during the quarter. Uncertainty over President Trump’s tax reforms and investment plans are continuing. This, along with the volatility due to European elections, kept the safe-haven demand for gold strong in 1Q17.

Gold ETFs and gold stocks

Despite these post-election changes, investors in gold ETFs have benefited from gold’s upward journey. Those ETFs include the SPDR Gold Shares (GLD), the VanEck Vectors Gold Miners ETF (GDX), and the VanEck Vectors Junior Gold Miners ETF (GDXJ). Depending on their leverage to gold prices, their 4Q16 results, and their outlook, individual miners have outperformed gold in 1Q17.

In this series

In this series, we’ll divide miners into the following five categories:

  1. senior gold miners
  2. intermediate gold miners
  3. South African gold miners
  4. royalty and streaming companies
  5. silver miners

We’ll analyze these miners’ performances in 1Q17 and look at some reasons for their divergence. As you can see in the above graph, Sibanye Gold (SBGL), Gold Fields (GFI), Barrick Gold (ABX), and Pan American Silver (PAAS) outperformed precious metal miners in 1Q17.

We’ll also look at Wall Street analysts’ recommendations and ratings for these precious metal miners. It’s important to note that analysts’ estimates usually lag behind price movements. We see upgrades when stocks have already risen. As for downgrades, they come when a company has already seen lower prices.

That being said, changes in analysts’ estimates are key drivers of short-term price movements. It’s a good idea to keep track of changes in analysts’ estimates because they offer insight into what the market expects from a company.

In the next part of this series, we’ll look at analysts’ ratings for senior gold miners.

For a preview of 1Q17 earnings for gold miners, please read Gold Sector’s 1Q17 Earnings Preview: What to Expect.

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