How Did Gold Stock Perform In Light Of Stagnated Gold Prices?
The S&P closed red to start of the 2nd quarter of 2020. This comes after the markets, mainly the Dow saw its worst Q1 in recorded history. While the government ramps up to begin its stimulus, investors grow more curious as to what it will do for the markets. Right now, all major averages have started to head back into bear market territory (like they weren’t already). But for some reason, the U.S. dollar has remained relatively strong.
This seems to have been the sticking point for gold’s would-be bull run. Typically, a lower rate environment, low yields, and economic slowdowns would be perfect cases for a gold rally. But with a stronger dollar right now, that has put some breaks on the bull. There could be some light at the end of the tunnel. A lot of it has to do with things that have been announced but not yet acted upon; one being stimulus money flow.
Gareth Berry of Macquarie spoke about the U.S. dollar on CNBC. Berry sees the news about the Fed’s quantitative easing program as a driving force for the U.S. dollar weakness. While coronavirus concerns grow around the globe, the base case for gold remains strong in my opinion.
“Gold may witness choppy trade as increasing virus risk may keep US dollar supported but also result in more measures by governments and central banks. We, however, maintain buy on dips view as monetary and fiscal easing may increase appeal of gold,” stated Kotak Securities in a recent interview.
Gold Stocks Hold Gains On Tuesday
The good news, for now, is that gold stocks have continued to perform well. On April 1st many of the top names as well as junior gold stocks managed to inch higher. Considering that the price of gold didn’t move much, that might be a healthy sign for the market in general.
IAM Gold (IAG Stock Report) for instance, saw its second consecutive day of gains to start the second quarter. Shares of the gold company jumped to highs of $2.48 during the morning session before closing the day just shy of that high, at $2.47. While trading volumes were a bit lighter, it doesn’t negate the fact that gold stocks began pulling away from the stranglehold that the price of gold had on most stocks for the last few months.
If you look back a few weeks, you’ll more clearly see this as most gold stocks plummeted with the price of gold and the broader markets in general. Now we may have begun to see a bit of divergence as investors focus on company fundamentals and as ETFs rebalance.
Similarly, shares of Alamos Gold (AGI Stock Report) extended its gains for the week with a strong start to the second quarter. Shares of the gold stock began the week trading around $5.28.
By Tuesday morning, Alamos gold stock had rallied to highs of $5.62. Even after closing at $5.36, AGI jumped to $5.50 a share during after-hours trading. Like most companies, Alamos has taken precautions to address COVID-19.
The company suspended operations at its Island Gold project for 14 days. However, its Young-Davidson and Mulatos projects haven’t been impacted. Alamos is actually on track to achieve its consolidated production guidance for the first quarter as well. The company expects to generate between 105,000 and 110,000 ounces of gold for the quarter.
SSR Mining (SSRM Stock Report) was another top-performing gold stock on Tuesday. Shares jumped to highs of $12.37 and while this wasn’t the high for the week, it was the first time SSR stock closed green since March 25.
The gold stock has been in somewhat of a freefall for the last few sessions. It came within striking distance of testing its 200-day moving average late last month. But that appears to be a potential level of resistance in the meantime. As of April 1, that 200DMA sits around $15.65.
Similar to Alamos, SSR also suspended operations at one of the projects. The Seabee Gold operation will be shut down until April 30 according to the company. While it will continue to assess the circumstances, in the interim, it seems unlikely that the reopening date will be much sooner. Paul Benson, President and CEO said in a press release, “The decision to temporarily suspend operations at Seabee was made considering the specific and unique circumstances at Seabee, a remote fly-in, fly-out northern Saskatchewan operation.”
Larger gold company, Royal Gold (RGLD Stock Report) also saw a strong start to the second quarter. The gold stock was able to close up by about 4% and near its high of the day at $92.51, which was reached right before the bell on Tuesday. Where many analysts have been downgrading gold stocks in the short term, the community appears bullish on Royal for the time being. B. Riley FBR maintains a Buy rating on the stock. Scotiabank upgraded its rating recently to Sector Perform.
As a streaming company, Royal gold relies on counterparties from which to purchase its metals and minerals. In a recent update, the company said that several of its counterparties have recently implemented reductions in their mining operations due to the ongoing COVID-19 pandemic. Companies including Vale S.A. (VALE Stock Report), New Gold (NGD Stock Report) and Agnico Eagle (AEM Stock Report) have all suspended mining operations.
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Meanwhile, Centerra Gold has released updated reserves and life of mine plans for its Mount Milligan. Royal Gold holds gold and copper purchase rights to this mine. The updated mine plan as of Dec. 31, 2019 states total reserves of 191 million tonnes, a net decrease of 240.2 million tonnes from the prior year.
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