Are gold stocks primed for another leg up? On surface level, that notion seems utterly ridiculous. The yellow metal’s spot price fell 1% to close last week, while it has lost roughly 4% of its value since June 6. Because of the recent ugliness impacting gold prices, the traditional safe-haven asset is up a mere 6.5% year-to-date.
Such a pedestrian performance has disappointed investors in gold stocks, who were hoping for a reversal of fortune. Since going parabolic in the commodities super-spike in 2011, the precious metals have had a tough time justifying themselves. Through supposedly favorable fundamental tailwinds — economic uncertainty and geopolitical tensions, in particular — gold prices stubbornly fell.
Yet the contradiction between the fundamentals and the technicals may not last much longer. Bloomberg reported that gold volatility is near ten-year lows despite raging geopolitical instability. In late June, an extremely large sell order was issued, sending gold stocks plummeting. But the sharp contrast between the sell order and market logic suggested that an erroneous trade was at fault.
Whatever the cause, the damage was done. The panic in the commodities market triggered automated sell orders, creating a snowball effect. Even if the fundamentals are supportive of gold stocks, the bulls will experience trouble pushing past the automated orders.
Still, I remain optimistic. As Susanne Barton and Eddie van der Walt reported on the July 3, 2017 edition of Bloomberg Businessweek, the selloff may be the result of gold manipulation. If so, bullion investors can take solace in that once the shenanigans are over, gold prices may spark another rally.
Should the fundamentals reassert themselves, look for these four gold stocks to take advantage.
Gold Stocks for a Breakout: Randgold Resources (GOLD)
Thanks to its vast mining project networks throughout the African continent, Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) was better able to survive the commodities onslaught than lesser-capitalized gold stocks. Randgold also brought home an important earnings beat in the first quarter of fiscal 2017. Prior to that report, GOLD suffered three consecutive earnings misses.
Indeed, Randgold may have chosen the perfect time to right its ship. On a YTD basis, GOLD stock is up 17.5%, beating benchmark indices by a comfortable margin. The mining company has also performed remarkably better than rival gold stocks. For instance, the Market Vectors Gold Miners ETF (NYSEARCA:GDX) is only up a little over 5% YTD.
Should the underlying precious metals market find solid traction, I fully expect GOLD to shoot significantly higher.
Technically, Randgold shares are supported by a generally rising trend channel. This dynamic is bolstered by the company’s strong profitability margins and top-line growth. Many of the weaknesses and underperforming assets have been cleaned out in prior bearish cycles. Today, GOLD stock is leaner and meaner. Should gold prices cooperate, the mining stalwart could easily become a high-flyer.
In other words, double-digit returns aren’t shabby at all, but imagine if the headwind flipped itself around?
Gold Stocks for a Breakout: IAMGOLD Corp (IAG)
Although it’s tempting to pick up cheap gold stocks during a deflationary cycle, I recommend higher-quality names like IAMGOLD Corp (USA) (NYSE:IAG). The stronger organizations are able to weather the storm and address weaknesses in their business. Too often, the junior names, while severely discounted, are levered to more than just gold prices. Thus, any number of factors could quickly destroy your investment.
The reason I prefer IAG is that they’re willing to make hard decisions to promote longer-term sustainability. According to their website, IAMGOLD has cut onerous costs and implemented efficiencies in their operations since 2013. The process was hardly a cakewalk. But over the past four years, IAG is actually up 14%, which is a rare achievement for gold stocks.
This year, IAMGOLD shares are up over 33%, the biggest margin among the gold stocks featured on this list. The company also has one of the stronger technical trends in the sector, where the current price stands above its 50- and 200-day moving averages.
On the fundamental side, IAG is keeping Wall Street extremely happy. Over the past five quarters, IAMGOLD has delivered strong earnings beats, which is again another rarity in the sector. Thus, an improvement in gold prices would just be a bonus. They’ve already demonstrated resilience without that benefit!
Gold Stocks for a Breakout: Royal Gold (RGLD)
Similar to the prior two companies, Royal Gold, Inc (USA) (NASDAQ:RGLD) is a name I trust to make the most out of a possible resurgence in gold prices. Although junior mining stocks have the greatest upside potential, a production setback or even something mundane like a labor dispute could end up derailing investors.
In contrast, RGLD has been around the block more than a few times.
With 38 producing royalties, and another 22 that are in development stage, Royal Gold is equipped to handle any market condition. In the years following gold’s parabolic move in 2011, RGLD has focused on cleaning up its financials. Recently, this has included paying down debts and cutting out administrative expenses. Through these efforts, RGLD has one of the highest profitability margins among gold stocks, as well as robust sales growth.
Additionally, Royal Gold scored an important earnings beat for its Q3 FY 2017 report. As a result of the company’s efforts, RGLD stock is up about 27% YTD. It’s also one of the few gold stocks that have managed to absorb recent volatility in the underlying gold market. Although mining investors haven’t had much to smile about, they can take reassurances from RGLD’s stability.
Of course, things can change pleasantly rather quickly should gold prices become great again!
Gold Stocks for a Breakout: Kinross Gold (KGC)
When faced with severe troubles, the independent oil and gas sector in 2014 had two choices: go home and cry about it, or start doing what was absolutely necessary. Those companies that are remaining after the most recent oil crisis obviously made the latter decision. Essentially, this is the story behind Kinross Gold Corporation (USA) (NYSE:KGC).
Over the trailing five years, KGC stock has lost more than half its market value. Like other gold stocks, Kinross tripped up in their financials as their business plan did not foresee massive price deflation. Between 2011 and 2015, KGC incurred negative gross profit, giving them no chance to get ahead. Finally, that dreadful circumstance reversed in 2016, thanks to sharp cuts in business costs and ongoing expenses.
Now, KGC runs a cleaner operation, helped also by the fact that it kept its liabilities under control. Kinross rewarded patient investors with a strong beat for its most recent Q1 earnings report. Furthermore, KGC stock is up over 27% YTD, one of the better performances among gold stocks.
Because of its consistent discipline, Kinross could trudge ahead, despite the present weakness in gold prices. However, a return to normal trading logic in precious metals could provide the knock-out punch that KGC investors have long waited for.
As of this writing, Josh Enomoto is long gold.