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Why Did Gold Prices and Gold Mining Stock Performances Diverge in 1H17?

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Nov. 20 2020, Updated 3:33 p.m. ET

Gold and gold miners

Gold miners in 2017 seem to be driven more by company-specific factors than by the direction of gold prices. While gold prices (GLD) rose 7.7% in the first-half of 2017, the VanEck Vectors Gold Miners ETF (GDX) rose 5.5% during the same period.

Usually, gold equities act as leveraged plays on gold prices. If gold prices increase, these equity stocks increase by a much higher level, and vice versa.

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Company-specific factors

The above graph shows the first-half performance of precious metal miners. There are many factors driving this performance. The South African government recently introduced a charter, which was detrimental to the interests of the companies and which led almost all of them to fall in 2Q17, after rising significantly in 1Q17.

Mine-specific issues troubled Barrick Gold (ABX), Eldorado Gold (EGO), and Tahoe Resources (TAHO), leading to several downgrades. Better-than-expected results and a robust outlook, on the other hand, buoyed stock performances of miners like Kinross Gold (KGC) and IAMGOLD (IAG).

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 1H17 and look at some reasons for their divergence. As you can see in the above graph, IAMGOLD (IAG), Kinross Gold (KGC), Royal Gold (RGLD), and Franco Nevada (FNV) outperformed precious metal miners in 1H17.

We’ll also look at Wall Street analysts’ recommendations and ratings for these precious metal miners. While analysts’ estimates usually lag behind price movements, the 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.

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