Gold-Mining Giants Benefit From Rebound in Bullion Prices
Gold mining majors swung back into positive territory last week, as shares recovered on a dovish Federal Reserve announcement.
Following a four-week slump, gold miners including Barrick Gold Corp. (NYSE: ABX, TSX: ABX.TO), Newmont Mining Corp. (NYSE: NEM, TSX-V: NEM.VN) and Gold Fields Ltd (NYSE: GFI, OTC: GFIOF) all saw positive momentum.
The Bloomberg Intelligence (BI) Global Senior Gold Valuation Peer Group — a basket of 15 producers — was up 6.5% this past week, marking the biggest uptick since the end of December, Bloomberg reported.
Leading the weekly gains, was Johannesburg-based Gold Fields Ltd., up 15% this past week, the biggest jump since February 2016.
The gains among gold miners were also reflected in a 4.3% weekly gain in the Market Vectors Gold Miners Exchange-Traded Fund (NYSEARC: GDX). However, the majors were slightly outperformed by junior producers as the Market Vectors Junior Gold Miners ETF (NYSEARC: GDXJ) ended the week with a more than 4.5% gain.
The miners benefited from the strong rally in gold prices, following Wednesday’s Fed announcement, which promised a gradual pace of rate hikes this year. Last week, the Fed raised interest rates by 25 basis points to 0.75%-to-1.00% range, but kept its outlook relatively unchanged.
“The old rule of thumb was that three rate hikes by the Fed would lead to a stumble in financial markets. But the fact that rates are starting at such a low level, as well as Yellen’s hand-holding and relatively mild remarks, kept markets on an even keel following this cycle’s third rate move. We look for two more rate hikes this year, and a similar muted market response,” Douglas Porter, chief economist at BMO Capital Markets, said in a research note.
The news pushed gold higher and helped the bullion continue its advance from the first two months of the year. On Friday, gold futures for April delivery rose 0.3% and settled at $1,230.20 an ounce, up more than 2% from the previous week.
“Gold has staged a sharp rebound … with prices springing above $1230 after the Federal Reserve signaled a more gradual pace of monetary tightening in 2017 than what markets anticipated. The ‘dovish hike’ and caution displayed by the Fed simply disappointed many hawks consequently exposing the Dollar to downside shocks,” said FXTM Research Analyst Lukman Otunuga.