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What’s Impacting the Price Performances of Senior Gold Miners?

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Sep. 14 2016, Published 1:12 p.m. ET

The gold miner space

This year started out on a very good note for gold and gold miners. Recently, gold miners have given up some of their gains in anticipation of a Federal Reserve rate hike. Still, the gains made by miners this year have been a welcome change against their multiyear losing streak.

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Leverage at play

Gold equities are essentially a leveraged play on gold prices. When gold’s price fell 11% in 2015, the VanEck Vectors Gold Miners ETF (GDX) amplified that loss by returning -25%. 

This year is different only in direction, with GDX amplifying gold’s gains positively this time. The higher the correlation or leverage to gold prices, the higher the impact on stock prices. So during times of high and increasing gold prices, leveraged ETFs and equities usually outperform the underlying commodity.

With increasing gold prices, these players’ leverages lead to higher-than-industry gains. The largest outperformances in the senior gold miner space have come from the most levered stocks. Kinross Gold (KGC) and Yamana Gold (AUY) are higher-cost producers. Higher stock price gains usually happen in the early stages of a gold bull market.

On the other hand, the most defensive stocks, including Goldcorp (GG) and Agnico-Eagle Mines (AEM), have underperformed their senior peers in 2016, as can be seen in the above graph.

In this series

In this series, we’ll look at Wall Street analysts’ recommendations and ratings for senior gold 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 Barrick Gold (ABX) in the next part of this series.

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