On the heels of renewed optimism regarding a potential resolution to the trade war between the U.S. and China, shares of several gold mining companies declined on Monday. In addition, the VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund fell 1.24% to $27.93 per share.
Gold stocks are being used by investors to shield their portfolios from the volatility created by uncertainties related to the ongoing trade dispute.
The price of the bullion closed 1.23% lower at $1,496.60 per troy ounce on Monday, but compared to its cumulative average of $1,336.45 and early 2019 price levels, the precious metal is still abundantly in the green following strong growth of 15% year to date.
Monday’s loss is only temporary, however, and doesn’t mean the gold bull market is over. On the contrary, market participants are convinced there will be further conflict in regard to trade between the two countries, creating further uncertainty that will continue to propel the price of the precious metal higher.
Further, analysts expect the Federal Reserve will implement additional cuts to the federal funds rate in the coming months, boosting the gold price as investors prefer the metal to bonds.
Investors can take advantage of the rising commodity price by increasing their portfolio exposure to the metal through investments in publicly traded gold producers.
Thus, investors may want to consider Pretium Resources Inc. (PVG, Financial) as the stock has some catalysts along with an overweight recommendation rating from Wall Street analysts. The rating means the stock is expected to outperform either the mining industry or the overall market in the coming weeks.
Pretium Resources’ Brucejack Mine in northwestern British Columbia is ramping up production and is expected to increase throughputs of higher ore gold grades in the third and fourth quarters.
The company guided for gold production of 390,000 to 420,000 ounces for the full year. Pretium Resources also forecasted that the all-in sustaining cost per ounce of gold will be much lower than $940 per ounce paid in the second quarter as production increases throughout the remainder of the year.
The miner reported on Aug. 1 it topped expectations for earnings and revenue in the second quarter, generating a 21.4% increase in the share price over the following week.Ă‚
The company posted earnings of 9 cents per share on $113.2 million in revenue, surpassing expectations by $2.95 million thanks to 5.5% quarter-over-quarter growth in gold sales volumes to 85,953 ounces.
These increases will not only have a positive impact on the company's profitability, but will push the stock higher.Ă‚
Investors must be aware that the stock is not trading cheaply as the share price is well above the 200-, 100- and 50-day simple moving average lines after climbing 42% over the past year through Aug. 19.
The closing share price of $12.2 on Monday was nearly 22% off the midpoint of the 52-week range $6.53 to $13.50.
Further, the price-book ratio is 2.51 compared to the industry median of 1.44 and the enterprise value-Ebitda ratio is 14.47 versus the industry median of 8.11.
The stock is expensive, but investors can still increase their positions since analysts have assigned an average price target of $19.12Ă‚ per share, implying 55% upside within 12 months.
Disclosure: I have no positions in any securities mentioned.
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