Today, Zacks Equity Research discusses the Metals & Mining industry, including: Barrick Gold Corporation (NYSE: ABX), Agnico-Eagle (NYSE: AEM), Goldcorp Inc. (NYSE: GG), Newmont Mining Corporation (NYSE: NEM) and Kinross Gold Corporation (NYSE: KGC).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/56261/Metals+%26amp%3B+Mining+Stock+Outlook+-+July+2011
Global gold demand in the first quarter of 2011 totaled 981.3 tons, up 11% year over year from 881.0 tons in the first quarter of 2010. This was largely attributable to the widespread rise in demand for bars and coins, supported by an improvement in jewelry demand in key markets.
The quarterly average gold price hit a new record of $1,386.27/oz (London PM Fix), its eighth consecutive year-over-year increase. Despite a period of price consolidation in the early part of the quarter, it climbed to record highs throughout March and has continued to achieve new highs in April and May.
Gold remained a coveted asset given its long-term supply and demand dynamics and influenced by macro-economic factors. Concerns regarding economic growth in developed countries made gold an attractive and safe investment option. The European sovereign debt crisis made European investors use gold as a currency hedge. Pressure on the US dollar against various currencies coupled with higher inflation expectations in many countries, including India and China, also pushed up gold prices.
The value and wealth preservation attributes of gold continue to attract investors and consumers. Jewelry and investment demand in non-Western markets continues to rebound while industrial demand has started to recover in response to an improvement in economic conditions. India, which alone consumes nearly 45%−50% of the world gold production, should drive demand for gold along with China. The Chinese gold demand is expected to double in 10 years.
Even though gold price dropped 7% in January this year, it again recorded a rise in February. We believe gold demand and prices will strengthen in 2011. As China and India continue to grow rapidly, their demand for gold will also rise in tandem.
Higher prices bode well for gold producers, which should benefit giants such as Barrick Gold Corporation (NYSE: ABX), Agnico-Eagle (NYSE: AEM) and Goldcorp Inc. (NYSE: GG). However, gold producers like Newmont Mining Corporation (NYSE: NEM) and Kinross Gold Corporation (NYSE: KGC) suffer from lower ore grades that subdue production levels, increase mining costs and offset the benefits of rising gold prices.
Overall, the stock prices of gold producers are not expected to benefit much from this favorable commodity-price backdrop. This is reflected in our overall long-term neutral views on the stocks. As major economies continue to recover, investors’ confidence will be restored to invest in stock markets, which could cause gold prices to fall. However this is not going to happen in the near future. We have a Zacks #3 Rank (Hold) on Barrick Gold, Agnico-Eagle, Goldcorp, Kinross Gold Corporation and Newmont Mining.
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