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Gold Trends Up for the Week

Analysts estimate an average price of $1,244 per troy ounce

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Feb 06, 2017
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Gold for immediate delivery closed week five at $1,215.20 per troy ounce on the London Bullion Market, down $6.75 per troy ounce from the previous trading day when the precious metal closed at $1,215.20.

Except for this small dip, week five has been characterized by an uptrend in the gold market.

Gold rose $23.20 per troy ounce from $1,189.85 on Jan. 30 to $1,213.05 on Feb. 3.

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Source: Kitco.com

Since the beginning of the new year, gold is trending up on the LBM as shown by the graphic below:

02May2017134752.jpg

Source: Kitco.com

During week five, we have witnessed two major jumps in the price of gold.

The first one was on Jan. 31, when gold went up nearly $20.00 per troy ounce on the LBM as the U.S. dollar dropped. Following the news about President Trump’s suggestion to have a weaker dollar versus other currencies as a manoeuvre to stimulate U.S. exports, the DXY index fell 0.92% and closed at $99.51, a whisper away from the lowest price of $99.23 on Feb. 2.

The second jump on the LBM was on Feb. 2, when gold bounced up $14.05 per troy ounce at the end of the morning’s negotiations, and $18.30 at end of the afternoon’s trades.

What made gold continue its uptrend since the beginning of 2017 was the increase in the gold investment demand in response to a higher inflation seen by U.S. households, which is synthetized in a drop of the Consumer Confidence Index released by the U.S. Conference Board last week.

Bloomberg writes that U.S. households perceive a “higher inflation and interest rates over the coming year.”

According to the U.S. Conference Board’s report, the present situation index, which synthesizes households’ answers to two questions related to present economic conditions, increased by 6.2 points, from 123.5 in December to 129.7 in January. The expectations index, which synthesizes households’ answers to three questions about future expectations, fell 6.2 points from 106.4 in December to 99.8 points January.

This situation that promotes rising gold price will continue as the Fed keeps postponing the hikes in interest rates and U.S. households continue to see a future characterized by higher inflation with pessimism.

Concerning forecasts on gold, “contributors are predicting that the gold price will average $1,244/oz in 2017, 5.3% higher than the first half of January 2017, but broadly in line with the actual average price in 2016,” writes Market Slant. The average price of gold for 2017 as estimated by analysts ranges between a low of $1,110 and a high of $1,350.

According to Market Slant, increased uncertainty due to President Trump's policies should play in favour of rising gold prices. However, anaemic Chinese and Indian gold demand, the three increases in the Fed’s interest rates as anticipated for 2017, the strengthening of the dollar and the increase in the price of the stocks traded on the U.S. stock markets will work exactly the opposite.

Concerning the Comex, Gold Futures - Feb. 17 (GCG7) closed at $1,218.50 per troy ounce, up $1.80 from the previous close and up $30.70 per troy ounce from Jan. 27.

Over the last trading month, the price of gold futures ranged between a high of $1,224.20 and a low of $1,172.00. The average price and average change were $1,200.31 per ounce and 3.29% over the observed period.

During week five, gold futures were less volatile compared to the last trading month. The average change in the price of the contracts through which gold is traded was 2.44%, with an average price per troy ounce of $1,205.12.

Let’s have a look at the gold stock industry.

Year to date, Market Vectors Gold Miners ETF (GDX) gained 17% and outperformed the biggest gold producers of the industry. The index outperformed Barrick Gold Corp. (NYSE:ABX) by 2%, Goldcorp Inc. (NYSE:GG) by 1% and Newmont Mining Corp. (NYSE:NEM) by 11%. The SPDR Gold Trust (ETF)(GLD) gained 6% year to date.

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Goldcorp is trading around $16.28 per share at 1.04 times the book value. The EV/Ebitda ratio is 12.10.

Barrick, the world’s largest gold producer, is currently trading around $18.93 per share at 2.93 times the book value and 6.93 times the Ebitda. The enterprise value is $27.95 billion.

Newmont is trading around $36.76 per share with a price-book ratio of 1.76 and an EV/Ebitda ratio of 7.03.

Among the other gold producers, Iamgold (NYSE:IAG) gained 14%, Harmony Gold (NYSE:HMY) up 13%, Eldorado Gold Corp. (NYSE:EGO) up 8%, Yamana Gold (NYSE:AUY) up 14% and Kinross Gold Corp. (NYSE:KGC) up 19%.

Disclosure: I have no positions in any security mentioned in this article.

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