What happened
There's no question that September was a rough month for investors as the S&P 500 gave up 9.3% and the tech-heavy Nasdaq fell 10.5%.
However, during a month where nearly all stocks finished lower, one group of stocks not only beat the market in September, but also recorded solid gains. That's gold stocks. In fact, SSR Mining (SSRM 1.96%) and Barrick Gold (GOLD -1.02%) finished the month in positive territory, while i-80 Gold (NYSEMKT: IAUX) was down just slightly. According to data from S&P Global Market Intelligence, SSR Mining gained 9.1%, while Barrick Gold increased 4.4%, and i-80 Gold fell just 3.3% on the month.
As you can see from the chart below, all three stocks mostly tracked the stock market indexes until they soared in the last few days of September.
So what
After sliding through much of September, gold prices climbed 2% in the last few days of the month, and gained in the first few sessions of October. A decision by the Bank of England to buy long-dated bonds and an easing back in U.S. treasury yields seem to have helped spark the initial rally.
Because the supply of gold is limited, it's supposed to do well during high-inflation times like the current one since it can't be printed to increase its supply the way fiat currency can. New gold can only enter the market through mining, which is an expensive and time-consuming process.
However, despite high inflation, gold prices have actually fallen modestly this year, though the precious metal has outperformed the stock market.
That lower price in a high-inflation environment may be leading investors to give gold another look. Citigroup recently forecast gold to recover to $1,900/ounce by the second half of 2023, an increase of 10% from the $1,725/ounce where it was trading on Wednesday.
Gold prices are a primary determinant in the value of gold miners, which explains why SSR Mining, Barrick Gold, and i-80 Gold all gained to close out the month.
SSR Mining has been a strong performer over its history as the company benefits from low production costs. In its most recent quarter, its all-in sustaining costs (AISC) were $1,267, which allows the company to easily turn a profit, even when gold prices are down like they have been this year. SSR reported net income of $67.5 million on revenue of $319.5 million in the second quarter, and though both of those numbers were down from a year ago, the 21% profit margin should keep investors content.
SSR Mining also got some good news during September as it announced the restart of mining operations at its high-efficiency Copler Mine in Turkey.
Barrick Gold said at the beginning of the month that it would sell its royalty portfolio to Maverix Metals for up to $60 million. The following week, the stock received a neutral rating and a price target of $18 from Goldman Sachs as analyst Emily Chieng said its lower valuation reflected a higher legal risk. She also said Newmont Goldcorp offered better returns. The price target implies an upside of about 13%.
Barrick has a similar cost profile to SSR with its AISC at $1,216 in the most recent quarter. That's helped drive solid profitability with $488 million in profits on $2.86 billion in revenue in the second quarter, and a reliable dividend.
i-80 Gold is the smallest of these three companies, and the stock has struggled to build momentum. In fact, at $2 a share, it's now trading in penny stock range, which is considered to be under $5. The company announced two expansions last month. The first is in its Granite Creek mine in Nevada; the company said it expected the new zone to be a significant source of production in the coming years. It also announced the discovery of a new high-grade gold zone at its Ruby Hill property in Nevada.
Since the company is investing in increased production, i-80 is still operating at a loss. Its AISC was $1,326 in its most recent quarter.
Now what
With interest rates in focus, gold prices are likely to remain volatile in the coming months as the precious metal is sensitive to interest rates. Gold miners tend to carry high debt loads to finance operations as well, so higher interest rates are generally bad for the sector. Higher rates also make fixed income more appealing, which may cause some investors to shift from gold to bonds.
Barrick and SSR Mining look well prepared for success no matter what happens in the market, while i-80 is a more risky bet at this point, though its latest discoveries show signs of promise.
