Gold Stocks Pause Amid Brief Stock Market Rally But Where Do They Go From here?
The majority of Wednesday’s session saw the Dow Jones Industrial Average and S&P 500 churn, albeit at higher levels. That was the case right up until the last half hour of trading on May 6th. Continued discussions on phase 1 reopening of the U.S. economy remained a key focus. But new fears may have begun to surface.
[Read More] Has The Gold Stock Rush Started Once Again?
As the U.S. Presidential race speeds up, sitting President Donald Trump is working overtime to make sure the public knows the progress being made to fend off the coronavirus. Trump’s “Live and Let Die” attitude may have boosted confidence for some. His recent trip to an Arizona mask factory had the President getting a rundown of how the masks were being made. The famous Guns N’ Roses song Live and Let Die blared as Trump viewed progress.
But recent comments made this week bring up another topic that’s been on the backburner. China and U.S. were in a heated “trade war” before COVID-19 strangled headlines. That discussion received a breath of new life.
US President Donald Trump said on Wednesday he would be able to report in about a week or two on whether China is fulfilling its obligations under a Phase-1 trade deal. This was something that the two countries signed in January. Trump then told reporters China “may or may not keep the trade deal”. Of course a softening on the grounds of this Phase 1 deal didn’t fair well with the stock market today. This triggered the resurgence of panic and by the close, markets closed red.
Where Does This Leave The Price Of Gold & Gold Stocks?
It’s earnings season right now and a number of gold stocks have already reported a strong first quarter. Newmont Corp. (NEM Stock Report) announced first-quarter 2020 results on May 5. The company produced 1.5 million attributable ounces of gold. It also generated $939 million of cash from continuing operations and $611 million of Free Cash Flow.
Newmont refinanced $1.0 billion of outstanding debt at a historically low coupon of
2.25% and executed $300 million of share repurchases at average price of $45. Now, 80% of its $1 billion buyback program is now complete. While this news triggered a run to new 52-week highs of NEM stock, it was fleeting.
By Wednesday afternoon, Newmont gold stock gave back most of its gain from Tuesday. A drop in gold prices was the likely culprit in this case. But with a new interest in China trade uncertainty, will NEM stock be back on the move Thursday? On May 6 a number of analysts including Deutsche Bank, B of A Securities, and JP Morgan maintained their current ratings on NEM stock. However, all had boosted their target prices ranging from $70 to $83.
Kirkland Lake Gold (KL Stock Report) was another gold stock reporting earnings this week. While it didn’t result in new 52-week highs, it may have softened the blow from a drop in the price of gold on Wednesday. Net earnings grew 84% in Q1 2020 compared ot 2019 and 20% compared to Q4 of 2019. Furthermore, Kirkland Lake revenue totaled $554.7 million. This was an 82% increase from $304.9 million in Q1 2019 and 35% higher than $412.4 million in Q4 2019. As far as gold sales, these totaled 344,586 ounces, a 48% increase from Q1 2019.
Is It Time To Find Gold Stocks To Buy?
Analysts are boosting their target prices for gold stocks and many analysts are calling for much higher gold prices by 2021. This new rebirth of interest on the China/ U.S. trade ware could stoke the flames once again.
Analysts like Zhiwei Zhang president and chief economist of Pinpoint Asset Management explains U.S.-China trade tensions “look like something that will pick up. That’s probably the number one concern in the market when we talk to investors and sell-side analysts.”
“We already started to see some signs of escalation over the last few days (with) the U.S. side pointing fingers to China”Zhiwei Zhang president and chief economist of Pinpoint Asset Management
At the height of the trade tensions, gold prices seems to be unstoppable. When the coronavirus came about, it threw gasoline on an already red-hot inferno of momentum. This saw the price of gold rally from around $1,460 during the Thanksgiving week to highs of $1,704.30 right before the March stock market sell-off. As far as technical levels are concerned, gold could be approaching another pivot point on the chart.
We don’t need to dive deep into advanced technical indicators to see the line in the sand on the gold chart. The $1,675-$1,700 range has been a previous resistance turned current support area. Meanwhile, we watch and wait as even amid optimism for an economic restart, gold prices haven’t broken the overall trend. So now that an old “concern” is now apparently “new” again, should we expect another round of flights to safe-havens? Leave us your thoughts in the comments below.
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