Plunging Oil Prices, Coronavirus Fears Lift Gold Beyond $1,700

Plunging oil prices and rampant coronavirus fears led investors scurrying to buy gold, sending its price above $1,700 an ounce on Mar 8 — at levels last seen in December 2012.

Oil Price War Looming

Saudi Arabia slashed its official selling price and announced plans to raise crude production significantly. This was in retaliation to a breakdown of talks at the OPEC meeting in which Russia refused to lower its crude production. Oil prices have already been under pressure so far due to the coronavirus outbreak, which has impacted demand. On Mar 8, Brent oil futures were down 21% to 35.73 per barrel. Crude oil suffered a 21% drop to 32.52 per barrel on Mar 8.

This dealt another severe blow to the stock markets, which was already reeling under the global economic implications of the coronavirus outbreak. The Dow Jones Industrial Average fell 2013 points or 7.8% to close at 23,851.02. The S&P 500 declined 225.81 points or 7.6% to close at 2746.56. The Nasdaq Composite lost 924.94 points or 7.29% to close at 7,950.68.

Coronavirus Cases Cross 100,000 Mark

Per the World Health Organization’s situation report as of Mar 9, 2020, the number of confirmed coronavirus cases globally is at 109,577 and the death toll is at 3,809. In China, the confirmed cases stand at 80,904. Meanwhile, 28,673 cases have been confirmed outside China, with three countries — the Republic of Korea, Italy and Iran — making up 74% of the cases.

The impact of the same on customer spending, travel restrictions, factory closures in China, disruption in global supply chains, among others, are expected to weigh on the global economy. In fact, Per the Organisation for Economic Cooperation and Development (“OECD”), an escalation in the coronavirus outbreak could cut global economic growth in half and push several countries into recession. The body projects meager 2.4% growth in the world economy this year — the lowest rate since 2009. The growth rate of China is anticipated to be below 5% this year, suggesting a decline from 6.1% reported last year, which was the weakest growth rate in almost 30 years.

Gold Emerges the Winner

In this scenario, gold has become the preferred investment option. Gold prices are currently at 1,675.70 an ounce, up 10% so far this year, riding on U.S-Iran tensions in the beginning, followed by the coronavirus-triggered fears. Also, early this month, the U.S. Federal Reserve lowered the benchmark U.S interest rate by 0.5% to safeguard the economy against the threat of the coronavirus outbreak. This fueled prices as gold tends to attract buyers in a low interest-rate environment. The precious metal was also boosted by a weaker greenback. The U.S. dollar index, which measures the buck against six rivals, moved down 1.11% to 94.87.

The metal price rose 19% in 2019 — its biggest annual increase since 2010, aided by the U.S-China trade war, geopolitical concerns, the Brexit mayhem and a weak manufacturing sector. Further, three rate cuts by the Fed only added to the rally.

In tandem with gold prices, the Gold Mining industry has rallied 42% over the past year compared with the S&P 500’s growth of 5.6%. Notably, the industry falls under the broader Basic Material sector, which declined 19.1%. The industry currently carries a Zacks Industry Rank #25, which places it at the top 10% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

We thus believe that the time is right for investors to add some gold stocks to their portfolio. We have employed the Zacks Screener to pick four top-ranked gold stocks. Our research shows that stocks with the combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Sibanye Stillwater Limited (NYSE:SBSW) : The Weltevreden Park, South Africa-based company currently sports a Zacks Rank #1 and has a VGM Score of B. The company has a long-term estimated earnings growth rate of 20.4%. The Zacks Consensus Estimate for its 2020 earnings suggests growth of 1062% from the year-ago reported figure. The estimate has gone up 97% over the past 60 days.

Kinross Gold Corporation (NYSE:KGC) : Based in Toronto, Canada, the company presently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its 2020 earnings has moved up 19% in the past 60 days. The estimate indicates a year-over-year rise of 47.1%. The company delivered a positive earnings surprise of 182.5% over the trailing four quarters.

Harmony Gold Mining Company Limited (NYSE:HMY) : Based in Randfontein, South Africa, the company currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its 2020 earnings indicates year-over-year growth of 221%. Further, the estimate has moved up 18% over the past 60 days.

Gold Fields Limited (NYSE:GFI) : The Zacks Consensus Estimate for 2020 earnings of the Sandton, South Africa-based company indicates year-over-year growth of 21.4%. The estimate has also moved up 28% over the past 60 days. This Zacks Ranked #2 stock has a VGM Score of A at present.

Barrick Gold Corporation (NYSE:GOLD) : The Toronto, Canada-based company currently carries a Zacks Rank #2 and a VGM Score of B. It has an estimated long-term earnings growth rate of 2%. The Zacks Consensus Estimate for its 2020 earnings has moved up 6% over the past 60 days and indicates year-over-year growth of 49%. The company has a trailing four-quarter positive earnings surprise of 17.9%, on average.

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