Shares in gold miners perk up

Despite the recent downturn in gold prices, shares of companies that mine the precious metal were up on Friday and still on track for their biggest annual gain in 13 years.

The NYSE Arca gold miner index, made up of 39 companies including Barrick Gold and Nemont Mining, was up 1.6 per cent on Friday and has gained 41 per cent so far this year — leaving it poised for its best annual gain since 2003, when it was up 47.1 per cent. The gains come after five consecutive annual declines.

Barrick Gold shares are up 93 per cent this year to $14.24, while shares in Newmont Mining are up 75.5 per cent over the same period to $31.57. Meanwhile, Goldcorp shares have advanced nearly 8 per cent so far this year to $12.48, while AngloGold Ashanti shares are up 36.7 per cent year-to-date to $9.71.

Gold miners had rallied into the start of the year buoyed by a surge in the price of the precious metal.

The Federal Reserve had overestimated the pace at which it would be able to tighten policy, signalling four rate rises for the year after it first lifted rates in December 2015. However, it only delivered one, this week. The absence of interest rate rises for much of the year helped lift the precious metal, which offers no yield.

Indeed, low interest rates and geopolitical uncertainties pushed the yellow metal up more than 20 per cent in the year to October.

However, Donald Trump’s election victory in November and the Federal Reserve’s decision to lift rates and forecast a faster pace of tightening in the coming year, has seen gold’s year-to-date gains trimmed to just 7 per cent. And that in turn crimped some of the rally in gold miners, which had been up 78 per cent until the end of October.

So what has helped gold miners in the wake of the recent drop in prices? Suki Cooper, an analyst at Standard Chartered, said miners have been focused on “cutting costs rather than chasing ounces”, adding that lower oil prices and US dollar strength had helped miners’ profit margins even as gold prices have fallen.

But she cautioned there will still be “pressure into year end as rising US rate hike expectations are exacerbated by weak demand from core consumers, India and China”.

Friday’s rally in shares of gold producers accompanied a mixed day of trading in US stocks. By midday in New York, the S&P 500 was flat at 2,261.86, the Dow Jones Industrial Average had climbed 0.1 per cent to 19,877.07. Meanwhile, the Nasdaq Composite was down 0.1 per cent to 5,449.43.

Elsewhere, financials, which are poised to be the second-biggest gainers on the benchmark S&P 500 this year, underperformed on Friday, falling 0.5 per cent. Energy, which is poised to be the best-performing sector on the benchmark index this year with year-to-date gains of 25.2 per cent, was up 0.2 per cent on Friday.

Twitter: @mamtabadkar