A boost in interest rates often means bad news for gold, but it appears that investors can set aside any immediate fears as gold prices continue their steady climb.
The precious metal hit its third highest level over 52 weeks at $1,314.90 per troy ounce on the London Bullion Market. That is as of Thursday, Jan. 3. On average, the bullion is up $56.35 per troy ounce compared to 2017.
Where is gold heading in 2018? Analysts see the yellow metal averaging $1,320 - $1,325 per troy ounce on the London Bullion Market. In addition, there are several factors at work that point to a favorable performance. I believe the dollar's weakness make gold increasingly attractive. The market's current high stock valuations will likely experience a correction in 2018. And, analysts are predicting two interest hikes for 2018. That is fewer than the three forecasted by the Federal Reserve Bank.
Investing in the bullion is not the only option for investors who want to shield their wealth from inflation, which is anticipated to reach moderate levels. Investors also can gain exposure to gold by investing in its producers.
Investors, for example, may acquire stakes in the publicly traded gold mining companies or through the VanEck Vectors Gold Miners ETF (GDX).
Among the publicly traded miners, I would opt for Iamgold Corp (IAG, Financial) because this stock is characterized by a higher gold beta than its peers. I also see some catalysts that may trigger the stock to skyrocket.
The high volatility that characterizes Iamgold with regard to changes in the price of the precious metal can be easily found in the chart below. In the chart, the Canadian mid-tier gold stock is compared with the Comex (Gold Futures) and the NYSE ARCA GOLD BUGS INDEX (HUI) over the last 3 years:
Source: Investing.com
Valuation
Iamgold is currently trading at $6.1 per share and above the 200, 100 and 50-SMA lines. This means that the gold stock may be currently overvalued by the market, even though Iamgold has a P/B ratio of 1.07 versus an industry median of 2.01 and an EV-to-EBITDA ratio of 2.76, which is far below the industry median of 10.14.
The 52-week performance ranges from $3.36 to $7.25.
Furthermore, an RSI of 68 tells us the stock has almost reached overbought levels and that a correction is just a matter of time.
Before increasing holdings in Iamgold with some catalysts in mind (see last paragraph of linked article), I would wait for another downgrade.
A negative change in the rating of Iamgold may push the mid-tier gold stock down to the end of October levels when the stock lost nearly 13% following Canaccord Genuity’s downgraded to Hold (from Buy) of Sept. 29.
Catalyst
The company’s next announcement of progressions on the undertaken mineral exploration and development programs is important to investors.
The release of the information tends to appreciate the value of the gold stock on the market.
This happened approximately one month ago when Iamgold published some drilling results from Phase II of the 2017 Saramacca exploration program. Since then, the stock, also helped by a rising commodity, soared on the New York Stock Exchange, gaining 7.8% and outperforming the NYSE ARCA GOLD BUGS INDEX (HUI) by 3.3%:
Source: Yahoo Finance
Investors may also want to pay special attention to the Canadian miner's next earnings announcement. It is expected to take place between the third and fourth week of February.
The bullion averaged $1,274.28 an ounce in fourth quarter 2017, and therefore it's likely that the mid-tier producer will exceed consensus on Earnings Per Share again. A positive surprise of more than 400% will certainly have a significant impact on the market value of Iamgold on the New York Stock Exchange.
Consensus is for an Earnings Per Share of 2 cents (U.S. dollars) and revenue of approximately $273 million, an increase of 8.10% percent over the year.
Disclosure: I have no positions in any securities mentioned in this article.
