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Zacks Industry Outlook Highlights: Barrick Gold, IAMGOLD, Goldcorp, Yamana Gold and Newmont Mining

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Chicago, IL - October 15, 2015 - Today, Zacks Equity Research discusses the Gold, including Barrick Gold Corp. ( ABX ), IAMGOLD Corp. ( IAG ), Goldcorp Inc. ( GG ), Yamana Gold, Inc. ( AUY ) and Newmont Mining Corp. ( NEM ).

Industry: Gold

Link: http://www.zacks.com/commentary/59321/gold-industry-stock-outlook---oct-2015

Gold Up on Delay in Fed Rate Hike: Will This Shine Last?

Gold prices surged to a 3-month high of $1,169 on Oct 12th, after the Federal Reserve published the minutes from its latest meeting. The clearly dovish tone that revealed that policymakers are in no rush to raise borrowing costs, considering the volatility in financial markets and concerns about China's economic slowdown and its potential spillover effects to other economies, led to the surge. China's slowdown appears to have started having a bearing on U.S. exports as well, further weakening the country's economy.

Moreover, the Fed believes that inflation, one of the major economic indicators in deciding rate hike, will not hit the 2% goal even by the end of 2018. The soft September jobs data has likely further confirmed the market's Fed expectations. This has led the dollar to hover at three-week lows. Dollar weakness usually benefits gold as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

The spike in gold prices moved up the share prices of certain gold miners, like Barrick Gold Corp. ( ABX ), IAMGOLD Corp. ( IAG ), Goldcorp Inc. ( GG ), Yamana Gold, Inc. ( AUY ) and Newmont Mining Corp. ( NEM ).

However, earlier in 2015, the specter of the much anticipated rate hike loomed over gold prices. Easing of political tensions also couldn't help the cause of gold. In July, prices had plunged to the lowest levels in five years.

The precious metal lost its sheen because of a strengthening dollar and China's shocking revelation after six years about its gold holdings, which was much lower than market expectations. According to from the Chinese central bank's data, the country's gold reserves stood at 1,658 tons at the end of June, a 57% increase from Apr 2009.

Let's take a deeper look at the other price drivers - the classic case of supply and demand.

Global Demand Dragged Down to 6-year Low by Jewelry

As per the World Gold Council, total gold demand dipped 12% in the second quarter to a six- year low of 914.9 tons. A 14% drop in jewelry demand to 513.5 tons was the main culprit behind this due to weakness in the key markets of India and China.

In India, extreme weather and its consequence on rural household income (accounting for more than half of Indian gold demand) and lack of festival and wedding buying led to an unceremonious 23% year-over-year fall in jewelry demand. In China, demand for gold jewelry dipped 5% due to slowing GDP growth and rallying stock markets.

While demand in the Middle East faced increase in VAT, lower oil prices , and currency weakness, demand in Turkey dipped as local prices jumped to record highs due to a plummeting lira. Only the 2% year-over-year increase in U.S jewelry demand is worth mentioning as consumers made use of the lower prices.

In the technology sector, gold demand was down 1% to 85.5 tons as substitution with cheaper materials continues to affect demand. After an impressive first quarter that saw ETF turning positive for the first time since the fourth quarter of 2012, ETF net flow was nil in the second quarter.

Overall investment demand dipped 11% to 178.5 tons due to three factors: directionless gold prices, inflows into risky assets such as equities and U.S interest rate hike expectations. Total bar and coin demand plunged 15% year over year to 201 tons. In Europe, demand for both bars and coins went up and ETFs saw an inflow helped by the Greek crisis.

The Central banks remained the primary acquirers of gold, purchasing net 137 tons over the quarter. This accumulation of gold reserves continues to be diversification, namely away from the US dollar. Russia retained its appetite for gold and claimed the top position, followed by Jordan and Kazakhstan.

Sector Level Earnings Trend

Within the Zacks Industry classification, the gold mining industry falls under the broader Basic Materials sector (one of the 16 Zacks sectors). The sector reported a 3.7% year-over-year increase in earnings in the second quarter. The third-quarter earnings season has just taken off and only 4.8% of the companies in the sector have come out with their numbers, putting up a 35.2% decline in earnings on the scoreboard.

Taking into account the other companies that are yet to report their results, the earnings graph is expected to take a nosedive from the 3.7% increase in the second quarter to a 21.6% decline in the third quarter. In the fourth quarter, it is expected to somewhat recover but still remain in the negative territory with a 12.6% drop.

The scenario nevertheless will improve next year, making its headway in the positive territory and then resume its upward course. An increase of 2.5% is expected in the first quarter, which will subsequently rise to 3.6% in the second and 23% in the third quarter. For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.

Industry Ranking & Outlook - Neutral

We rank all of the more than 257 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available on the Zacks Industry Rank page .

The way to align the ranking and outlook from the complete list of Zacks Industry Rank for the 257+ companies is that the outlook for the top one-third of the list (Zacks Industry Rank of #86 and lower) is positive, the middle one-third (between #87 and #172) is neutral while the outlook for the bottom one-third (Rank #173 and higher) is negative.

Currently, the gold mining industry is featured in the middle tier with a Zacks Industry Rank of #113, indicating a neutral outlook.

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BARRICK GOLD CP (ABX): Free Stock Analysis Report

IAMGOLD CORP (IAG): Free Stock Analysis Report

GOLDCORP INC (GG): Free Stock Analysis Report

YAMANA GOLD INC (AUY): Free Stock Analysis Report

NEWMONT MINING (NEM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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