Happy beginning of the week, precious-metals investors! Chances are, your mining holdings had a pretty impressive day.
As of 3 p.m. ET, spot gold was up nearly $15 an ounce to $1,258.60, which places gold well within striking distance of the closing highs it hit in February. Silver was even stronger on a percentage basis, rising to $15.93 an ounce as of 3 p.m. ET, which is 3.7% higher than where silver closed on Friday, April 8.
Gold's major catalysts
What's the impetus behind these strong moves? For starters, the U.S. dollar has been weak of late, losing value to a number of global currencies, including the euro. As you may already know, gold and the U.S. dollar have an inverse relationship. When the dollar rises, gold tends to fall; and when the dollar falls, gold prices tend to rise. With the U.S. dollar dropping since December, it increases the attractiveness of holding gold, which is perceived to be a better asset to store value for the time being.
Second, the U.S. Federal Reserve has been taking its eggshell stance to raising interest rates to new heights. Originally slated to raise lending rates four times in 2016, the Fed's comments have suggested that it'll be cautious about boosting lending rates in the near term in light of recent weak GDP growth in the U.S. and in key developed countries. If interest rates stay low, yields on assets like bonds should also remain low. Since gold offers no dividend, it tends to be a more alluring investment opportunity in a low-yield environment. Central banks around the globe have also been increasing their holdings of physical gold.
Lastly, gold is a fear and uncertainty hedge. Right now, there's enough uncertainty regarding growth in China, Europe as a whole, and the U.S. to cut with a knife. There's also political instability in certain regions, as well as concerns about crude prices that have plunged over the last two years. Gold is often viewed as a safe-haven investment when numerous uncertainties arise.
These five miners had a phenomenal day
The result -- at least for today -- is that if you're a shareholder in any of these miners, you likely have a smile stretching from one ear to the other:
- Silver Standard Resources (NASDAQ:SSRI): up as much as 12%
- B2Gold (NYSEMKT:BTG): up as much as 13%
- Sandstorm Gold (NYSEMKT:SAND): up as much as 14%
- IAMGOLD (NYSE:IAG): up as much as 13%
- Eldorado Gold (NYSE:EGO): up as much as 10%
Although rising underlying commodity prices have helped all five of these miners today, and the aforementioned catalysts are playing a role, each has a unique story why their share price is off to the races.
Silver Standard Resources has been soaring ever since Claude Resources (NASDAQOTH:CLGRF), a Canadian gold miner Silver Standard Resources has proposed to acquire in a nearly all-stock deal, reported its production results for the first quarter last week. Claude Resources achieved record production of nearly 20,700 ounces of gold in Q1, and it's pumped up its cash and bullion position to $45.2 million. If the deal is approved by Claude's shareholders, it would likely be immediately accretive to Silver Standard's bottom line, and it would add more gold diversity via Claude's Seabee Mine to Silver Standard's silver-heavy resource portfolio.
Less than a month ago, B2Gold announced its own equally impressive results in the fourth quarter. It produced more than 131,000 ounces of gold, an 18% improvement over the prior-year period, all while all-in sustaining costs, or AISC, dropped to $807 an ounce, a 15% year-over-year decline. The company's outlook also calls for full-year production growth of around 37,000 ounces at the midpoint of its guidance. If gold prices continue to rise and B2Gold can keep its expenses down, its margins will expand.
Sandstorm Gold, which is a royalty streaming company instead of a traditional miner, sees even more immediate benefits when gold prices rise. More recently, though, it's benefited from the sale of AuRico Metals common stock. Sandstorm's holdings netted the company more than $10 million in profit, which it'll use to help lower its outstanding revolving credit facility debt to $66 million. Debt and high costs are what got the gold industry into some trouble back in 2011-2014, so seeing companies take the initiative to reduce debt and maintain low expenses is encouraging.
As for IAMGOLD, a miner of gold, silver, and other byproducts in West Africa, as well as North and South America, its catalyst, like B2Gold, was a solid earnings report (although its quarterly report came in February). The company's 806,000 ounces of production exceeded the midpoint of its own guidance; it more than doubled the amount of cash, cash equivalents, restricted cash, and bullion compared to the end of the previous fiscal year; and AISC was within its expectations and would have been 5% lower had some hedging activities not worked against the company. It's looking like another promising year for IAMGOLD in 2016.
As for Eldorado Gold, it receives the most immediate impact courtesy of an upgrade from Credit Suisse on April 8. Covering analyst Anita Soni upgraded the company to an "outperform" rating from "neutral" and set a price target of $4 on shares of Eldorado Gold. Soni suggested that the negative drivers of Eldorado's Skouries mine in Greece have been adequately priced into its share price, and that other catalysts, such as modest production growth in the coming four years, as well as a dovish Fed, should move its valuation higher.
Keep in mind that each of the situations should be taken uniquely. The last thing you want to do is lump all miners into one basket. There are differing fundamentals with each of these companies, and investors will want to dig into each individually to get the full story.
Nonetheless, a low-yield environment coupled with uncertainty does appear to bode well in the intermediate term for gold and silver miners -- and that's something you may want to take note of.
Sean Williams owns shares of Claude Resources but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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