Zacks Industry Outlook Highlights: Barrick Gold, Alamos Gold, Yamana Gold, IAMGOLD and Harmony Gold Mining

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Oct 01, 2014, 09:30 ET

CHICAGO, Oct. 1, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Gold Mining, including Barrick Gold Corporation (NYSE:ABX-Free Report), Alamos Gold Inc. (NYSE:AGI-Free Report), Yamana Gold, Inc. (NYSE:AUY-Free Report), IAMGOLD Corp. (NYSE:IAG-Free Report) and Harmony Gold Mining Company Ltd. (NYSE:HMY-Free Report).

Industry: Gold Mining

Link: http://www.zacks.com/commentary/34631/

At the onset of 2014, gold investors enjoyed some respite after a nightmarish 2013, in which it lost 28% of its value with everything going against it. However, concerns about the economy and geopolitical tensions boosted its safe haven appeal in 2014 and acted as catalysts for its value. Nevertheless, of late, a stronger US dollar has again tainted the precious metal's grandeur and toppled its price. Further, demand has been weak in its biggest markets –China and India.

Fluctuating Prices in 2014 So Far

Gold has had its fair share of ups and downs in 2014, but prices remained in the range of $1,202 to $1,380 per ounce. After hovering on either side of $1,300 in the second quarter, gold prices plummeted to $1,244 per ounce in the first week of June as positive U.S. economic indicators boosted the dollar and pushed gold prices in the opposite direction. Gold's safe-haven status during the times of turmoil was tarnished by the waning concerns about Ukraine. Furthermore, lower demand in China as well as India, in contrast to the record levels last year, also kept prices at check.

Prices regained ground and hit a 3-month high of $1,339 on Jul 10, driven by mounting tensions over Ukraine and Gaza. During most of July, prices remained above $1,300 an ounce but at month-end, prices went down as the US economy picked up steam with stronger-than-expected GDP growth of 4%. In early August, gold prices steadied with the effects of economic data and geopolitical developments appearing to counterbalance each other.

In September, prices remained steadfastly under the $1300 range. As the dollar rose to four-year highs against a basket of currencies and stock markets strengthened, gold prices fell to a nine-month low of $1,207 per ounce on Sep 25. Shares of gold miners, Barrick Gold Corporation (NYSE:ABX-Free Report), Alamos Gold Inc. (NYSE:AGI-Free Report), Yamana Gold, Inc. (NYSE:AUY-Free Report), IAMGOLD Corp. (NYSE:IAG-Free Report) and Harmony Gold Mining Company Ltd. (NYSE:HMY-Free Report) all took a beating and hit 52-week lows on Sep 25. However, gold rebounded sharply from the nine-month low as sell-off in U.S. equities prompted investors to buy bullion as a mode of security.

However, these gains might not be long-lasting. As the U.S. economy continues to improve, the dollar will rally, which is not conducive for gold. In the balance of 2014, factors that could work in gold's favor are better-than-expected buying in India due to the upcoming traditional gold-buying festival and wedding season, and a return to safe-haven buying if the situation in Middle East worsens.

Gold Demand Weaker in Q2

As per the World Gold Council, total gold demand in the second quarter of 2014 was weaker year over year, declining 16% to 964 tons, as the quarter was pitted against remarkable demand levels witnessed in the prior-year quarter, which benefitted from the 25% drop in gold prices in contrast to the range bound prices this quarter.

Jewelry demand ended its bullish run for seven consecutive quarters, with a 20% dip in demand. Asian and Middle-Eastern countries experienced double-digit declines in demand while demand in western markets went up. However, on a positive note, even though jewelry demand in the first half of fiscal 2014 declined compared with the prior year, it has shown an upward trend so far in 2014.

In India, ongoing restrictions on gold imports as well as the governmental elections had a dampening effect. With the Reserve Bank of India allowing 5 star trading houses to import gold, it had the instant impact of releasing supply pressure and led to sharp drop in domestic market price premiums. However, the restrictions were no further relaxed, which along with the onset of the seasonally quieter gold buying period, subdued demand in India during the quarter.

One of the most noteworthy developments in the quarter was in the investment sector. Overall demand increased 4%, a marked improvement from the substantial decline in the past few quarters. Net ETF outflows in gold were a modest 40 tons in contrast with the 402 tons of outflows witnessed in the year-ago quarter. Bar and coin demand plunged 56% from the record levels last year. The huge purchases of bars and coins made in the previous year created a general reluctance to accumulate those further. Investors also awaited a clearer price trend.

Central banks remained the primary acquirers of gold, albeit at a slower rate, purchasing net 118 tons in the period, accounting for around 12% of total gold demand. In the technology sector, gold demand was down 3% because of a shift to cheaper materials.

In terms of demand, 2013 was an exceptional year, as customers flocked to purchase jewelry, bars and coins as the price went downhill. Thus, in 2014, demand will continue to bear the brunt of unfavorable year-on-year comparisons.

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