Precious metal prices
Although the gold sector (GDX) had a strong run in 1H16, it has been showing signs of weakness in 2H16. The Fed’s hawkish stance has weighed on precious metals, and Donald Trump’s win in November 2016 further weakened the metals. Nonetheless, gold prices gained 8.5% in 2016.
As we can see in the graph above, although Barrick Gold (ABX) has corrected recently, it outperformed its peers in 2016. It rose 106%, and Newmont Mining (NEM) followed with a gain of 85%. Agnico Eagle Mines (AEM), Yamana Gold (AUY), and Kinross Gold (KGC) gained, with rises of 56%, 46%, and 65%, respectively.
These stocks are more leveraged to gold prices than peers (GDX) (GDXJ), mainly due to high financial leverage in Barrick’s case and high operational leverage for Yamana and Kinross. Goldcorp (GG) rose by just 15% in 2016. Following the arrival of its new CEO, David Garofalo, Goldcorp’s expectations were reset to a lower level than what the market expected. Last year, operational issues at its existing mines also hurt its stock.
While the aforementioned companies have outperformed gold prices year-to-date, investors may be wondering what course they should take going forward. The 4Q16 results season for gold mining companies is scheduled to start post-market on February 15, 2017, when several gold miners will report their results. Mining companies will provide updates on their projects, production, and cost guidance.
In this series, we’ll talk about these companies’ earnings expectations and some of the common themes in the gold industry. We’ll also talk briefly about expectations for the gold producers we’ve mentioned above. Let’s start with market sentiments and expectations.