All the trends and swings that occur in the stock market, as well as instability in some corners of the global economy, have value-oriented investors looking more closely at precious metals. This includes things like owning physical gold, paper gold, gold exchange-traded funds, and other elements of the precious metals market.
One particular area that continues to grab the attention of value-oriented investors is gold mining stocks. Historically, gold tends to offer the most stability over other precious metals like silver and platinum. Still, mining stocks in these alternative precious metals still shouldn’t be taken off the proverbial table. It’s just that understanding the benefits and risks of gold mining stocks will arm you with the knowledge you need to ask the right the right questions about other precious metals.
When we put gold mining stocks into context, the overlying question is whether it’s time to implement them as part of a long-term investment position? Primarily in depressed share prices from things like gold producers and exploration companies?
Recent Trends In Gold Mining Stocks
During the first and the early part of the second quarter of 2018, we saw gold futures remained relatively unchanged. Then as the second quarter went on gold started to meander up to a price of $1,324 per ounce. It seemed as if gold was looking for a something to spark an increase in price. The slight wavering may have also been linked to what is generally considered to be the start of the gold mining season in North America, and the anticipation of more physical gold entering world markets.
Over the course of nine weeks the price of gold continued to meander sideways and at times it even struggled to remain buoyant at its trading floor range of $1,305. It continued to linger in that range for a full fifteen days. This may have suggested that overhead supply was still a factor impacting its immediate value as well as influencing speculation on it’s one to four-week outlook.
A closer look at the daily graph for iShares Gold Trust, which is traded on the New York Stock Exchange as SEARCA:IAU shows some additional interesting trends. For many experienced investors iShares Gold Trust which is the preferred trading vehicle for gold. This means it can also provide insights on the chances of gold making a breakout.
At that time the $12.50 level in iShares Gold Trust IAU graph reflected the $1,305 level that we saw in April of 2018’s gold futures contract. Take in this light, so long as the IAU could remain above the $12.50 level, then its lateral trend could remain in force. At the same time, it also could be interpreted that there was still a chance for an upside breakout as the second fiscal quarter continued on.
The anticipation was that there would be a gold rally in the short-term or there might be a long-term uptick in the price of gold. Without some other indicator, gold could have lost its inertia. This would have reversed the IAU’s intermediate-term rate of change, which would have made it much, therefore, easier for potential sellers to continue to gradually push the price of gold below the always pivotal $12.50 level.
At the close of the month of April 4th, 2018 Gold’s price had rallied somewhat to 1332.80 which was -9.30 or -0.70%. Taken in context the Gold/Silver Ratio was 81.53 which was 0.81 or 1.00%.
Can Past Gold Mining Stock Trends Help Predict The Future?
This meandering trend in gold, as well as other precious metals, means we need to look even harder at their stock output, especially the gold stock output. To do this, we need to step back from the immediate term as well as the short-term picture to look at the long-term picture cast in the 17-year graph of PHLX Gold/Silver Index which is also known as XAU.
This takes us all the way back to 2002 when there was a major bull market in gold shares. At that time the XAU looked like a good bargain. You could even be tempted to conclude that the price graph had essentially reached a sold-out technical condition.
At the same time, we also need to look at mining company fundamentals. The vast majority of the senior, and mid-tier, as well as the small-cap mining companies, have demonstrated an improvement in their price to earnings ratios which include factoring in their dividend yields.
Even though they’re not riding as high as they were in the past, they still look healthy and strong. We see Kinross Gold (NYSE:KGC) posted profits of $445.4 million for 2017. This is compared to a net loss of $104 million. The adjusted earnings during that same span of time were $178.7 million, which means it was up 92.2% from the $93 that it reported in 2016
Furthermore, Barrick Gold which trades as ABX reported adjusted net earnings of $876 million in 2017 which is up 7% from the $818 million that they reported in 2016. Agnico Eagle (NYSE:AEM) also reported $243.9 million in profits in 2017 profits which is up a staggering 53.6% for a net income of $158.8 million.
When we consider that the relative price and earnings outlook for the major gold miners demonstrated clear improvement and that sustained gold prices rallied it greatly bolsters the argument that they have the chance to significantly outperform gold in bull market conditions.
When we look at the trends, we can see the significant increase in consumer prices from 2002 to 2008 which was also related to conspicuous war-related commodities inflation. Since 2008 the inflation rate of change has gradually come down, yet it is starting to recover from the global deflationary trend spanning from 2012 to 2015.
The Potential For An Increase In Gold Mining Stocks
The gradual and consistent increase in interest rates may also be reflective of the gradual rebound in inflation. At the present moment, it doesn’t seem to be a severe economic threat.
This essentially means that the prospects for steady increases in gold and gold mining stock prices are likely strong. Yet you should temper your expectation and don’t be lulled into thinking we will see a massive explosion in gold producing and exploration shares in the short or even mid-term.