Gold equities are undervalued, and the companies are fundamentally sound…….
Joe Foster, Portfolio Manager and Strategist at Van Eck
Gold mining stocks currently out of fashion
“Due to a lack of demand, the gold mining sector missed its performance expectations last year. The market has shown a muted response to earnings, and this lack of interest has caused them to fall short of performance expectations. The sustainability of gains from earnings has declined in the last two years. Meanwhile, losses on earnings misses have become much worse in the last few years and these losses have been sustained over a longer period. We are currently seeing a lack of buying interest and absent are those momentum players that follow the winners who beat earnings and the value seekers who invest in those companies which disappoint.
Performance of some of the largest gold equity companies over the past 12 months:
While this lack of interest sounds negative, we are excited by the opportunity it presents. We believe gold equities are undervalued, and the companies are fundamentally sound. Given the sector’s modest growth projections, a strengthening global economy, and steady demand from markets such as China and India, the sector remains attractive.
Fed meeting is crucial
In the coming weeks, gold prices could rise due to expectations of a Federal Reserve rate hike. While $1,365 per ounce has been the ceiling for the gold price, the floor has been rising consistently since 2015. Ahead of a potential rate hike, gold could test its bottom line trend threshold this month. Given the resilience of the gold price as a result of geopolitical risks, trade tensions and inflation, we would be surprised to see gold fall below this level. However, in the second half of 2018, the gold price could again run against this latest cap of $ 1,365. A spark that moves the gold price through its $1,365 ceiling may rekindle interest in the miners.