Goldcorp (GG) got the earnings season for gold miners off to a nice start with fourth-quarter profits that beat the Bloomberg consensus by 17 cents. Shares were up 4% on Tuesday amid speculation that the company would beat the Street, and the stock tacked on an additional 2.3% in after-hours trading.
Gold Miner Earnings: Goldcorp & Barrick Gain as Results Shine ILLUSTRATION: BLOOMBERG NEWS Then Barrick Gold (ABX), the world's biggest gold producer by ounces, reported an adjusted net earnings result of 22 cents a share, which beat the Bloomberg consensus estimate by a penny. Shares were up 1.5% in after-hours trading.
Clearly Goldcorp, which Barron's touted in a lengthy feature story last month, has the most to crow about with its results. Earnings for the fourth quarter were $242 million, or $0.28 per share, compared to net earnings of $101 million, or $0.12 per share, for the fourth quarter of 2016. That 28 cent result beat both the consensus of 11 cents a share as well as the highest analyst estimate of 16 cents a share.
It's rare when gold miners perform in ways that exceed even the most optimistic observers. Indeed, as we noted in a blog post Tuesday, shares of Goldcorp and other major gold miners have underperformed the metal itself in the past year, despite that fact that gold miners, thanks to "earnings leverage," are supposed to best the metal when the metal's price is riding. Barrick's stock has been an industry laggard over the past year, losing roughly a third of its value.
Gold mining watchers also want to see that production levels are rising, or at least not falling. And Goldcorp reported that gold production in 2017 exceeded the midpoint of the Company's gold production guidance of 2.5 million ounces, while the company's all-in sustained cost of $824 per ounce for 2017 was in line with the Company's improved midpoint guidance of $825 per ounce, "reflecting the progress the Company has made on its sustainable efficiency program."
But for this battered sector, the real stock gains won't come with Street-beating earnings; they'll come if and when the price of gold, which has moved modestly higher in recent months, makes a meaningful move higher.
Funds expert Q&A: Gold is good hedge to volatility in 2018 - By ALEX VEIGAPublished February 22, 2018 FeaturesAssociated Press
Gold has traditionally been considered a refuge for investors seeking shelter from a volatile stock market, though the big market tumble this month may have been an exception.
Despite the market's first correction, or drop of at least 10 percent from a recent peak, in two years, there wasn't much of a flight to gold or other safe-haven assets. In fact, the price of gold pulled back somewhat along with the drop in stocks, though it has held above $1,300 an ounce this year. The precious metal is up 7.5 percent over the past 12 months.
One reason the steep market sell-off may not have spurred a big move to gold is many economists and Wall Street experts still project strong global economic growth and improved company earnings this year.
Still, many market strategists also expect that Wall Street's long period of relative calm is at an end. Unlike 2017, investors are now increasingly jittery about the possibility that inflation could begin rising this year and lead the Federal Reserve to speed its timetable for interest rate hikes, concerns that have driven bond yields sharply higher lately.
Commodities like gold tend to act as good hedges against inflation and the weak dollar, which has been relatively softer since last year.
In light of that tug-of-war between a strong market outlook and concerns that inflation could stage a comeback, what are the prospects for further gains in gold funds?
Tushar Yadava, investment strategist for US iShares at BlackRock, weighs in. BlackRock's funds include the iShares Gold Trust ETF, or exchange-traded fund, which invests in physical gold.
Answers have been edited for clarity and length.
Q: How is the market for gold faring this year in light of the recent market correction?
A: Gold as a portfolio hedge and as hedge in terms of signs of stress is doing exactly as advertised. It's delivering that diversification benefit, and it has done that, especially through the volatility over the last couple of weeks.
What we do find maybe interesting or slightly different is the long-term outlook here. When you're in an environment where equities sold off, in part, because of a shock to real rates or interest rates or the inflation outlook as a whole, typically that's not the best environment for gold overall. But it's working as a great diversification benefit at the moment.
Q: Many economists expect interest rates to rise this year. How is that likely to affect the gold trade?
A: What I would say is, gold doesn't have any cash flows. It is purely a stored value over time, so it is susceptible to inflationary trends and it is susceptible to when real rates are rising, maybe losing some of its relative attractiveness. At any point in time when you're a holder of gold, you're holding it to diversify away from the current environment. That is a factor that's out there, obviously, relative to if the economy is doing really, really well, real rates are rising and earnings for equities are increasing over time. So it might not be the best relative holding over that period of time.
Q: The 2018 outlook for the U.S. economy and company earnings remains strong. At the same time, there's a likelihood of higher interest rates and more market volatility. Where does a gold hedge fit into this?
A: We think the global economy has room to run, even though a lot of that expansion occurred in 2017. We think there's room to run in an expansionary outlook, but we also think inflation is probably making a comeback. Again, with all these factors as you're weighing them, gold is the hedge, it is the strategic holding to be a diversifier in your portfolio. And we are not viewing gold as some sort of tactical asset allocation bet. I would say, if you have this tactical view of gold, you probably have a darker view on the world. I would argue that gold is being that hedge, that strategic diversifier. And the reason that you would hold it.
Gold is also obviously going to be a go-to safe-haven that you're looking at on days when geopolitical risk is flaring.
Kitco NewsShare this article: Gold Begins The Week With Gains As All Eyes Turn To Powell (Kitco News) - Gold prices rose in Asian trading on Monday following a decline of more than 1% last week, as traders turned their attention to Federal Reserve chair Jerome Powell’s upcoming testimony.
April Comex gold futures advanced to $1,338.70, up 0.63% on the day, while the U.S. dollar index declined to 89.72, down 0.27% on the day.
Powell’s semi-annual testimony in front of U.S. Congress will begin on Tuesday and traders are ready to start picking apart the Fed chair’s comments for any potential clues in terms of future pace of U.S. monetary tightening.
But, analysts project to see largely the same policy outlook as established by the former Fed chair Janet Yellen.
“We expect Powell to signal policy continuity in the near term and acknowledge the near-term growth effects of fiscal policy and the longer-term deficit and debt implications. He will also likely be asked about recent changes in financial conditions and the risks they pose to the outlook,” analysts at Nomura said in a note published on Friday.
Here Is Why Gold Bulls Should Be Eyeing $1,375 Level
Many experts are wondering why gold hasn’t broken out yet, especially in light of rising inflation fears, but one analyst says the $1,375 level is what it’s all about.
The key resistance this year has been the $1,375 target, said Matt Maley, equity strategist at Miller Tabak, adding that gold has been testing this level during the last couple of years, but was unable to successfully breach it.
“The $1,375 mark was the metal's highs from both 2016 and 2017, so a break above that line would give gold a technically significant ‘higher high’,” he wrote in a CNBC post published on Friday.
Another aspect of the $1,375 level is that it forms the “top line in ‘an ascending triangle’ pattern.” And if that formation finally breaks on an upside, a very bullish technical momentum will be triggered, Maley said.
“Of course, we always have to wait for an actual break of this key resistance level before we can declare anything. Still, investors should consider that any meaningful break above $1,375 would confirm that the multiyear downtrend has reversed,” he added.
Note .... The gold bull market in the 1970s and 1980s happened even as the Fed tested record-high interest rates. The yield on the 30-year Treasury bond rallied sharply during the late 1970s, eventually topping 15% in 1981. Gold rallied from about $100 per ounce in 1976 to over $850 per ounce in 1980.
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