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After an extended rally on post-Brexit vote market jitters, gold lost some steam in August, weighed down by increased speculations over a near-term rate hike by the U.S. Federal Reserve and a stronger U.S. dollar.
What Caused Gold’s Recent Retreat
Gold prices broke above the $1,300 per troy ounce level in Jun 2016 after Britain voted to leave the European Union (EU). The market-jolting move sparked as much as around 8% surge in the metal’s prices to trade at levels last seen in Jul 2014. The Brexit-induced chaos in the global markets spurred investors’ demand for safe havens, triggering a strong rally in gold.
Moreover, gold prices have been gaining support from expectations that central banks around the world would step up monetary stimulus to avert economic damages from Brexit. The U.S. Federal Reserve’s dovish stance has been another major factor that has helped gold regain its shine this year after a harrowing 2015.
However, Gold has been losing some of its shine of late. Prices of the yellow metal took a beating last month after an encouraging July job report raised chances of an interest-rate hike in September, stripping away some of the allure of safe havens including gold.
Gold prices slipped to a two-month low yesterday as better-than-expected private-sector hiring numbers further boosted prospects for a Fed rate hike and provided a lift to the greenback. The ADP payroll survey suggested that the private sector added 177,000 jobs in August, better than the median forecast of 175,000. Hawkish comments from top Federal Reserve officials also raised prospects of a rate hike in the coming months and fueled a surge in the U.S. dollar that hit a three-week high. Gold prices ended more than 3% lower in August.
All eyes are now fixed on Friday’s U.S. jobs report. A strong report would further strengthen expectations of a rate hike, which in turn will lift the dollar and hurt gold.
The prospects for a hike in interest rates typically boosts the dollar and weighs on precious metals, including gold. On the other hand, a delay in raising interest rates elevates demand for gold, which produces no income but relies on price appreciation to attract investors.
What Could Support a Rebound?
Notwithstanding the pullback in August, prices of the yellow metal are still up roughly 23% year to date. Prices of the metal rose more than 2% in second-quarter 2016, aided by a supportive macro environment.
The chances of an upside for gold remains this month, since a slew of risks continues to hover on the horizon. Concerns about global economic growth and lingering economic and political uncertainties in a post-Brexit world are also likely to act in favor of gold. Further, the path for U.S. rate hikes is still unclear. Some analysts still feel that gold prices could touch the $1,400 an ounce threshold later this year.
Moreover, gold prices are generally helped by retail demand in countries like India and China, with the wedding and festival seasons occurring in the second half of the year. India will be a major driver with pent up demand having intensified due to the shutdown of jewelry stores earlier this year.
A good monsoon season in India has also ushered in the prospects for a bigger harvest, which in turn is expected to boost purchasing power of gold among farmers and support gold demand. The farming community accounts for bulk of gold purchases in India.
5 Stocks That Slumped in August, But are Poised for Gain
Bullion’s pullback also led to a slump in the share prices of many gold miners last month. Below we highlight 5 such gold stocks that lost more than 10% of their value in August but are poised for a good run this month. These stocks boast solid growth prospects, a good Zacks rank and are also seeing positive estimate revisions.
AngloGold Ashanti Ltd. AU
Headquartered in Johannesburg, South Africa, AngloGold Ashanti operates as a gold mining and exploration company. The stock lost roughly 26% of its value in August.
AngloGold Ashanti sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2016 has moved up around 38% over the last 60 days. The stock has expected earnings growth of 352% for the current year.
Sibanye Gold Ltd. SBGL
Sibanye Gold, based in Westonaria, South Africa, owns and operates underground and surface gold operations in South Africa. The stock lost around 17% of its value in August.
Sibanye Gold carries a Zacks Rank #1 and has expected earnings growth of a whopping 987% for the current year. The Zacks Consensus Estimate for 2016 has shot up around 30% over the last 60 days.
B2Gold Corp. BTG
Vancouver, Canada-based B2Gold explores and develops mineral properties in Nicaragua, the Philippines, Namibia, Burkina Faso and Chile. The company primarily explores for gold, silver and copper. The stock lost around 22% of its value in August.
The company holds a Zacks Rank #2 (Buy) and has expected earnings growth of a staggering 1,067% for the current year. The Zacks Consensus Estimate for the current year has moved up 33% over the last 60 days.
Randgold Resources Ltd. GOLD
Randgold Resources explores for gold deposits and develops gold deposits in Sub-Saharan Africa. The company lost roughly 20% of its value in August.
The stock sports a Zacks Rank #2 and has a long term expected earnings growth of 6.2%. The Zacks Consensus Estimate for the current year has increased 10% over the last 60 days. The stock has expected earnings growth of 60% for 2016.
IAMGOLD Corp. IAG
Toronto-based IAMGOLD is engaged in the exploration, development and operation of gold mining properties. It also explores for copper and silver. The company holds interests in four operating gold mines, as well as exploration and development projects located in Africa, South America and Canada. The stock lost roughly 28% of its value in August.
IAMGOLD holds a Zacks Rank #2 and has expected earnings growth of roughly 112% for the current year. Over the past 60 days, the Zacks Consensus Estimate for 2016 has gone up from a loss of 10 cents to earnings of 5 cents. The stock also has a long term expected earnings growth of 3%.
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ANGLOGOLD LTD (AU): Free Stock Analysis Report
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