As Gold Prices Rally, What Else Is Driving Gold Mining Stocks?



Gold price performance

Gold prices have risen 15% year-to-date as of April 13, making gold the best-performing investment in 2016 so far. The major driver behind the current rally is the weakness in the US dollar (UUP). The dollar’s weakness is driven by the market’s expectations of subdued global growth. This reticence has also tempered expectations for the frequency and amount of Federal Reserve rate hikes. To read more about gold’s direction, please see Must Know: Where Are Gold Prices Headed Next?

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Gold miners on a tear

We’ve seen strong gains for precious metal miners. Gold miners (GDX)(GDXJ) are essentially a leveraged play on gold prices, and they tend to magnify the weakness or strength in gold prices. Miners with higher operational or financial leverage tend to outperform others miners when gold prices are on a run. That’s what we’re seeing in the gold market right now.

Series overview

In this series, we categorize miners into five sub-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’ performance year-to-date basis and the reasons for their divergence. As the above graph shows, Harmony Gold (HMY), Coeur Mining (CDE), Sibanye Gold (SBGL), First Majestic Silver (AG), and Kinross Gold (KGC) have gained the most.

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 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. You should keep track of changes in analysts’ estimates because they offer insight into what the market expects from a given company.

We’ll start by looking at analysts’ ratings for senior gold miners in the next part of this series.


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