Gold price outlook
On Monday, Feb. 17, gold closed at $1,580.80 per troy ounce on the London bullion market and at $1,587.05 per troy ounce on the Comex gold futures market, gaining on average about 19% from the same period a year ago.
But the rally in the gold price is not over. Economic weakness will likely spread due to factors such as trade tensions and the new coronavirus outbreak in China, which might even spread globally. Volatility in the financial markets may cause the precious metal to break through $1,600 per ounce.
Some countries in the Eurozone, such as Italy, may lose the boost of low interest rates as structural and budgetary policies meant to strengthen productivity are at risk as a result of political instability.
Germany and France, among several other countries, report negative structural trends in crucial economic sectors.
In the U.S., solid conditions in the labour market cannot sustain growth for much longer. The domestic industrial production, a predictor of future levels of consumer spending, continues to post annual declines in its monthly output. In January, it dropped for the fifth time in a row and for the second consecutive quarter.
Thus, gold is expected to move significantly higher from current prices as investors seek to protect their assets from declines.
Agnico Eagle Mines
With another large gold price uptrend expected to emerge, investors may consider purchasing shares of Canadian miner Agnico Eagle Mines Ltd. (AEM, Financial), as Wall Street predicts that its share price wil see almost 37% growth within a year (the target price is $68.32 as of Feb. 18). Ten sell-side analysts recommend buying this stock, while five suggest continuing to hold it. Only two analysts issued negative ratings.
On the tailwind of a year-ago gold bull market, Agnico Eagle limited rose 37% through Feb. 13, topping the VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund (the benchmark for the mining industry) by 14%.
The below chart illustrates that the current share price ($49.87 as of Feb. 14) is below the 200-, 100- and 50-day simple moving average lines.
The share price also represents a 4.6% discount to the middle point of the 52-week range of $39.66 to $64.88.
The stock has a price-book ratio of about 2.34 compared to the industry median of 1.49.
Agnico issued results for the final quarter and full year of 2019, after which it lowered its expected full-year 2020 production outlook due to a deceleration in the ramp-up rates of certain mining activities in Canada. The Canadian mining company now forecasts to mine 1.875 million ounces of gold in 2020 from its proven and probable mineral reserves (approximately 21.585 million ounces grading 2.83 grams of metal in one ton of ore), which are located in Canada, Mexico and Finland. The metal will be mined at an all in sustain cost of $975 to $1,025 per ounce of metal sold.
In 2019, higher gold prices and sales volumes allowed Agnico to hit a record operating cash flow of $881.7 million (up 45.6% from $605.7 million in full-year 2018), improving the financial conditions of the miner so that the balance sheet is now average for a security with an investment-grade rating.
Agnico will pay a quarterly cash dividend of 20 cents per common share to its shareholders on March 16. The quarterly distribution, which represents a 14.3% hike from the prior payment that was made on Dec. 16, 2019, generates a 1.1% trailing 12-month dividend and 1.6% forward dividend yield as of Feb. 17. Agnico Eagle has been continuously paying dividends since 1983.
Disclosure: I have no positions in any security mentioned.
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