$GOLD, $NEM, $XAU, $GDX, $NUGT, $GLD, $USD
FLASH: Gold prices have reversed to the Northside in the last several weeks.
The SPDR Gold Shares ETF (GLD) gained 8.0% in June, higher than the gainers of 6.4% and 7.1%, respectively, in the S&P 500 and the DJIA.
The VanEck Vectors Gold Miners ETF (GDX) amplified the gains in gold by returning 18.4% in June.
Investors in even more leveraged funds the Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG) spiked in June. They returned 60.6% and 58.8%, respectively, on the month.
The Fed pivoted after US-China trade dispute tensions escalate in May. The pivot supported gold. Other factors that supported gold included the USD weakening on the prospect of a Fed rate cut, geopolitical tensions, and weaker economic numbers.
The major drivers for gold will be the Fed’s Dovish tone and the market sentiment regarding global slowdown concerns. If slowdown concerns persist, gold’s demand should increase, supporting its price.
Gold miners’ performances
GDX rose 21.2% in 1-H of Y 2019. Gold miners’ stock performances varied widely during the frame. This variance was largely due to their Q-1 results, Y 2019 outlooks, and respective leverages to gold prices.
In 1-H, all major senior and intermediate gold miners except for IAMGOLD (IAG) gained due to the exceptional gains in gold prices. In the frame, Eldorado Gold (EGO) rose the most at 102%. New Gold (NGD), Agnico Eagle Mines (AEM), Kinross Gold (KGC), and Barrick Gold (GOLD) rose 27.0%, 26.8%, 19.8%, and 16.5%, respectively.
Among the gold miners we’ve been discussing, Agnico Eagle Mines (AEM) has the highest forward enterprise value-to-EBITDA multiple of 12.7x. Its multiple has expanded by 10% in Y 2019. For the company, a long harvesting period will start in Y 2019, as many of its projects are coming online after a long CAPEX phase. This development should drive significant cash flows for it going forward.
But, most of those positives are priced into the stock. Analysts have also turned around on the stock in droves in the last few months. Unless AEM announces a major positive surprise in Q-2 earnings, there does sees not seem to be much upside for its multiple in the short to medium term—unless there’s a substantial Northside in precious metals prices, especially gold, and such a rise would drive all miners North.
Barrick Gold has a forward multiple of 9.4X. Its multiple has risen 43% in Y 2019 and 68% since it announced its merger with Randgold Resources on 24 September 2018. While the market has factored in most of the immediate synergy benefits and growth from the merger, the Northside from here will depend on the execution after the merger.
Newmont Goldcorp’s forward multiple of 8.2X implies a premium of 8% to its trailing 5-year multiple. Newmont has a strong project pipeline with very low execution risk. Moreover, its synergies after the merger with Goldcorp could give a boost to its multiple. Its Nevada joint venture operations with Barrick Gold also offer a potential Northside to its stock.
So the answer to the opening Q, is Yes.
HeffX-LTN’s overall technical outlook for GDX is Very Bullish across the board for the week ending 19 July 2019.
Have a terrific week.
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