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Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV
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Gold prices plunged below the $1,650 mark by the end of 2022 but recovered and settled above $2,000 an ounce last year amid geopolitical unrest and recession worries. In 2024, gold prices have remained bullish so far as central banks across the globe have shown interest in acquiring the yellow metal.
An uptick in consumer demand is surely expected to boost the price of the bullion metal further, with market pundits projecting gold prices to scale above $3,000 an ounce by 2025. Gold prices are currently hovering well above the $2,400 mark and are looking forward to entering another growth phase buoyed by interest rate cut optimism.
The slowdown in price pressures and soft economic data bolstered the case for the Federal Reserve to be less aggressive in the latter part of the year, a blessing in disguise for gold prices vis-à-vis gold mining stocks such as Barrick Gold Corporation (GOLD - Free Report) , Kinross Gold Corporation (KGC - Free Report) and Franco-Nevada Corporation (FNV - Free Report) .
Inflation Ebbing
The monthly consumer prices dipped in June for the first time since the pandemic in 2020, with the consumer price index (CPI) declining 0.1% after remaining flat in May, per the Labor Department. Year-over-year, the CPI slowed to 3% in June from 3.3% in May. The 12-month rate is now at its lowest level since April 2021.
The Fed’s preferred inflation gauge, the personal consumption expenditure index, was unchanged in May, a tell-tale sign that inflationary pressure is losing its tight grip on the economy.
Weak Economic Data
Economic growth, meanwhile, lost momentum at the end of the second quarter. A sharp decline in orders led to a slump in service sector activity, with the non-manufacturing PMI plunging to a four-year low in June.
Manufacturing activity also contracted for the third successive month in June. Softening demand for goods took a toll on manufacturing activity despite improvements in business investment.
Slowdown in Job Additions
The Bureau of Labor Statistics stated that the jobless rate jumped to its highest in June since October 2021. This is an indication that the labor market is cooling down.
The unemployment rate, which includes part-time jobs and discouraged workers, continues to be at elevated levels, while job additions dipped in June from the prior month.
Odds of a Fed Rate Cut Rise
Interest rates, at the moment, are at record-high levels to curb the relentless rise in the cost of consumer goods and services. However, with inflation ebbing amid a slowdown in economic growth, the Fed is expected to trim rates as early as fall.
Market participants are now expecting at least two rate cuts by the end of this year, while the odds of a September rate cut by a quarter-point have now gone up by 88% compared to a probability of 52% a month ago, per the CME FedWatch Tool.
Rate Cuts Are a Boon for GOLD, KGC, FNV
In a low-interest-rate environment, fixed-income investments such as bonds will lose their attractiveness as money will flow out of such high-yielding investments and into gold. This, in turn, will lead to a jack-up in the price of the yellow metal and improve the profit margins of gold mining stocks, including Barrick Gold, Kinross Gold and Franco-Nevada. These stocks, currently, possess a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Barrick Gold
Barrick Gold is one of the largest gold mining companies in the world and has operations in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 5.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 27.4%.
Kinross Gold
Kinross Gold has major assets in Canada and the United States. Kinross Gold is engaged in the exploration of gold mines. The Zacks Consensus Estimate for its current-year earnings has increased 6.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.2%.
Franco-Nevada
Franco-Nevada operates as a gold-focused royalty and stream company. It holds interest in several energy assets worldwide, including the United States. The Zacks Consensus Estimate for its current-year earnings has increased 2.5% over the past 60 days. The company’s expected earnings growth rate for next year is 9.5%.
Shares of Barrick Gold, Kinross Gold and Franco-Nevada have gained 2.4%, 52.2%, and 16.5%, respectively, so far this year.
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Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV
Gold prices plunged below the $1,650 mark by the end of 2022 but recovered and settled above $2,000 an ounce last year amid geopolitical unrest and recession worries. In 2024, gold prices have remained bullish so far as central banks across the globe have shown interest in acquiring the yellow metal.
An uptick in consumer demand is surely expected to boost the price of the bullion metal further, with market pundits projecting gold prices to scale above $3,000 an ounce by 2025. Gold prices are currently hovering well above the $2,400 mark and are looking forward to entering another growth phase buoyed by interest rate cut optimism.
The slowdown in price pressures and soft economic data bolstered the case for the Federal Reserve to be less aggressive in the latter part of the year, a blessing in disguise for gold prices vis-à-vis gold mining stocks such as Barrick Gold Corporation (GOLD - Free Report) , Kinross Gold Corporation (KGC - Free Report) and Franco-Nevada Corporation (FNV - Free Report) .
Inflation Ebbing
The monthly consumer prices dipped in June for the first time since the pandemic in 2020, with the consumer price index (CPI) declining 0.1% after remaining flat in May, per the Labor Department. Year-over-year, the CPI slowed to 3% in June from 3.3% in May. The 12-month rate is now at its lowest level since April 2021.
The Fed’s preferred inflation gauge, the personal consumption expenditure index, was unchanged in May, a tell-tale sign that inflationary pressure is losing its tight grip on the economy.
Weak Economic Data
Economic growth, meanwhile, lost momentum at the end of the second quarter. A sharp decline in orders led to a slump in service sector activity, with the non-manufacturing PMI plunging to a four-year low in June.
Manufacturing activity also contracted for the third successive month in June. Softening demand for goods took a toll on manufacturing activity despite improvements in business investment.
Slowdown in Job Additions
The Bureau of Labor Statistics stated that the jobless rate jumped to its highest in June since October 2021. This is an indication that the labor market is cooling down.
The unemployment rate, which includes part-time jobs and discouraged workers, continues to be at elevated levels, while job additions dipped in June from the prior month.
Odds of a Fed Rate Cut Rise
Interest rates, at the moment, are at record-high levels to curb the relentless rise in the cost of consumer goods and services. However, with inflation ebbing amid a slowdown in economic growth, the Fed is expected to trim rates as early as fall.
Market participants are now expecting at least two rate cuts by the end of this year, while the odds of a September rate cut by a quarter-point have now gone up by 88% compared to a probability of 52% a month ago, per the CME FedWatch Tool.
Rate Cuts Are a Boon for GOLD, KGC, FNV
In a low-interest-rate environment, fixed-income investments such as bonds will lose their attractiveness as money will flow out of such high-yielding investments and into gold. This, in turn, will lead to a jack-up in the price of the yellow metal and improve the profit margins of gold mining stocks, including Barrick Gold, Kinross Gold and Franco-Nevada. These stocks, currently, possess a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Barrick Gold
Barrick Gold is one of the largest gold mining companies in the world and has operations in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 5.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 27.4%.
Kinross Gold
Kinross Gold has major assets in Canada and the United States. Kinross Gold is engaged in the exploration of gold mines. The Zacks Consensus Estimate for its current-year earnings has increased 6.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.2%.
Franco-Nevada
Franco-Nevada operates as a gold-focused royalty and stream company. It holds interest in several energy assets worldwide, including the United States. The Zacks Consensus Estimate for its current-year earnings has increased 2.5% over the past 60 days. The company’s expected earnings growth rate for next year is 9.5%.
Shares of Barrick Gold, Kinross Gold and Franco-Nevada have gained 2.4%, 52.2%, and 16.5%, respectively, so far this year.
Image Source: Zacks Investment Research