In 2014, Gold had a steady start and the prices rose through much of the year, fueled by geopolitical tensions. However, of late, prices have fallen due to a stronger dollar. Moreover, demand in its top markets – China and India -- has been subdued.
Let us a take a closer look at the movement in gold prices in the year so far and where they are heading.
Q1: Gold started 2014 at $1,202 per ounce and showed an upward trend since, buoyed by the growing demand for jewelry in China due to the Lunar New Year. In mid-March, gold attained a six-month high of $1,379 per ounce, stoked by Ukraine worries, fears of a slowdown in China and weak U.S. economic data that drove investors to take refuge to bullion as a safe haven. However, the bubble soon burst as gold prices fell below $1,300 per ounce at March end, on stronger-than-expected U.S. economic data.
Q2: Gold prices remained on either side of $1,300 before plunging to $1,244 per ounce in the first week of June on positive U.S. economic indicators and lower demand in China as well as India in contrast to the record levels last year. On Jul 10, mounting tensions over Ukraine and Gaza sent gold prices to a 3 month high of $1,339.
Through July, prices remained above $1,300 an ounce but at month end, prices dropped as the U.S. economy posted strong numbers. In early August, gold price steadied with the effects of economic data and geopolitical developments appearing to counterbalance each other.
Q3: In September, prices remained steadfastly under the $1300 range, eventually dipping to a 2014 low of $1,215 on Sep 19 on the back of a strong dollar. News of U.S.-led air strikes in Syria lifted gold price from these levels. As the dollar rose to four-year highs, gold prices fell to a nine-month low of $1,207 per ounce on Sep 25.
Gold rebounded sharply from the nine-month low to $1,222 per ounce when global equity markets fell sharply as the stronger dollar pointed to potential earnings losses, prompting investors to purchase bullion. Gold has again fallen from these levels and closed at $1,216 on Sep 30.
Gold prices are likely to drop even further as the U.S. dollar continues to strengthen. Further, persistent economic recovery may prompt the Federal Reserve to raise interest rates sooner than expected. The waning of geopolitical tensions will also weigh on gold prices. However, advent of the festive and wedding season in India is expected to spruce up demand in one of the biggest markets for gold.
In line with the recent movements in gold prices, we suggest three gold-mining stocks to steer clear from at the moment. We have screened gold mining stocks that either have a Zacks Rank #4 (Sell) or a Zacks Rank #5 (Strong Sell) and have witnessed downward estimate revisions over the past few weeks. These stocks are also expensive than their peers despite delivering negative year-to-date returns.
Primero Mining is engaged in the acquisition, exploration, development and production of precious metal properties in Canada and Mexico. The company explores for gold and silver. It owns interest in the San Dimas Mine, which is located in Mexico’s San Dimas district; and the Black Fox Complex that is located in the Timmins Mining District in Ontario, Canada.
Primero Mining currently carries a Zacks Rank #5 (Strong Sell). This Vancouver, Canada-based precious metals producer is currently trading at a forward P/E of 254.5, a significant premium to the industry average of 21.2. The stock has delivered a negative one-year return of 5.21%.
The company also holds a negative earnings growth estimate of 94.44% for 2014 and an average negative earnings surprise of 66.67% in the past four quarters. Moreover, The Zacks Consensus estimate has undergone negative revisions over the past 60 days.
Based in Randfontein, South Africa., Harmony Gold Mining is engaged in the exploration and mining of gold in South Africa and Papua New Guinea.
Harmony Gold currently carries a Zacks Rank #5 (Strong Sell). The company holds a negative growth estimate for earnings of 33.33% for fiscal 2015. Harmony Gold is currently trading at a P/E of 112.0, at a significant premium to the industry average of 26.28. The stock hit a 52-week low of $2.26 on Sep 26 and has delivered a negative one-year return of 4.7%. The Zacks Consensus estimate for the company has undergone negative revision over the past 60 days.
Based in Sandton, South Africa, Gold Fields Limited is engaged in the acquisition, exploration, development, and production of gold properties. It also explores for copper.
Gold Fields currently carries a Zacks Rank #4 (Sell). The stock is currently trading at a forward P/E of 30.62, at a premium to the industry average of 27.95. The stock has delivered a negative one-year return of 13.0%. The Zacks Consensus estimate has gone down over the past 60 days.
Exiting certain underperformers at the right time helps maximize portfolio returns. With uncertainty in gold prices and prospects of a stronger dollar, we believe it will be a prudent move to get rid of these stocks at the moment.
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