Leverage at play
The correlation of stocks with gold prices determines the impact of the change in gold prices on stock values. The higher the correlation or leverage to gold prices, the higher the impact on stock prices, either an upside or downside.
Iamgold (IAG) is one of those stocks that’s enjoying this leverage to a greater extent in the 2016 gold price rally. This also works in reverse.
The Direxion Daily Gold Miners Bull 3x ETF (NUGT), for example, has returned a staggering 416% YTD (year-to-date). The Direxion Daily Gold Miners Bear 3x ETF (DUST) has returned -96% in the same period.
Iamgold’s higher leverage
In the senior and intermediate gold miner space, Iamgold (IAG) has emerged as the most leveraged stock to gold’s price movements. It has shown the highest leverage to gold prices YTD.
IAG stock has risen 200% YTD as of July 22, 2016. Peers such as New Gold (NGD), Eldorado Gold (EGO), Agnico Eagle Mines (AEM), and Barrick Gold (ABX) have risen by 87%, 40%, 100%, and 165%, respectively.
Iamgold’s stock price gain is almost twice the gain of the VanEck Vectors Gold Miners ETF (GDX) with a rise of 100%.
Investors should note that this leverage works both ways. In 2015, when gold prices fell 11% due to exaggerated sensitivity to gold prices, IAG stock fell 48% compared to a fall of 25% in GDX.
In this series
Iamgold is slated to report its 2Q16 results on August 3, 2016, after the Market closes. In this series, we’ll look at analyst recommendations and 2Q16 earnings expectations for Iamgold.
It’s important to note that analyst estimates usually lag behind price movements. We see upgrades coming when stocks have already risen. As for downgrades, they come when a company has already seen a downward price action.
That said, changes in analyst estimates are key drivers of short-term price movements. Investors should keep track of changes in analyst estimates since they provide insight into what the Market is expecting from a company.