As gold reacted positively to changes in U.S. Treasury yields, gold stocks trended higher than gold. It wasn’t until Tuesday’s trading session that gold prices started falling after a strengthening U.S. economy suggested the possibility of a rate hike. The August gold contract was down US$36.60 at US$1,873.30 an ounce and the July copper contract was down 13 cents at US$4.46 a pound.
This resulted in the TSX reaching a midday high above 20,000 points for a third day in a row, but being unable to hold onto the gains and closing down 29.76 points at 19,941.39.
The Gold Miners Index has shown a strong performance since the beginning of Q1, with the ETF up more than 22% in Q2, easily outperforming the S&P-500 This change is quite positive for the index as it’s now finally gaining ground on the S&P-500. Some investors might think that they’ve missed the move with the GDX up 25% off its lows, but while some names are fairly priced, several others are still trading at very reasonable valuations. Let’s take a look at a few names below:
Newcrest Mining Ltd (ASX: NCM) share price, Evolution Mining Ltd (ASX: EVN) share price and Northern Star Resources Ltd (ASX: NST) have fallen and risen along with gold prices but remain promising. Brokers are currently giving Northern Star an “outperform” recommendation price with a 12-month price target of $13.30 a share. The geological potential of the company’s projects remains strong, with a large resource to reserve conversion opportunity.
New Gold is another mid-tier gold miner from Canada that came off a soft quarter in Q1, with the production of just ~96,000 gold-equivalent ounces. Looking at NGD’s earnings trend, we can see that the company is expected to generate $0.19 in annual EPS in FY2021, translating to an earnings breakout year for the stock.
The drop in gold prices below $1,700 in March warranted no concerns on the part of the miners, who continued to report strong cash flow. Cost guidance and forecasts for 2021 have been registered across the Senior/Major and mid-tier producers. At the same time, shrinking production against this rising-output backdrop, saw the 25 major gold miners perform less than optimally. This is nothing new, as they have generally suffered waning production for years now. Their gold mines are constantly depleting, and it is getting ever-more-challenging and expensive to find and develop new gold deposits into mines to offset that.