4 Gold Stocks Sparkle As August Sees Weak Jobs Growth

Weak August jobs data have dimmed hopes of a rate hike in the near term. With this, yield bearing assets lost their appeal and the U.S. dollar lost value. Both of these developments drove gold prices which will act as a hedge against uncertainties cropping from the drop in dollar value.

Gold has raked in stellar returns this year. We are also into that part of the year when returns from gold have been historically high. Hence, it will be prudent to invest in stocks exposed to the yellow metal.

Gold Enjoys a Bull Run

Gold prices held steady on Monday after closing at a one-week high in the previous session. At around 1:59 pm in New York on Friday, gold for immediate delivery rose 0.1% to $1,326.91 an ounce, the highest since Aug 23, according to Bloomberg generic pricing. Prices soared on Friday after moderate hiring in August opposed Fed’s rate hike bets.

With the Fed refraining from further tightening, gold has surged almost 30% this year. Brexit-induced volatility across the broader markets also drove demand for safe-haven assets like the yellow metal (read more: Brexit It Is; Gold Shoots to 2-Year Highs).

To top it, we are now in September, historically the best month of the year for the yellow metal. Since early 1970’s, the average return gold has produced in September is 2.2%, while the average return for the rest of the 11 months combined is 0.6%. On the other hand, September has spooked investors, with both the S&P 500 and the Dow generally closing in the negative (read more: 5 Best Stocks to Buy for a Dreadful September).

Jobs Report Disappoints

Following huge gains in early summer, pace of hiring slowed down in August. The non-farm payroll reading of 151,000 last month was well below the estimated 180,000 and the upwardly revised prior-month reading of 275,000. The unemployment rate was unchanged from the prior month at 4.9%, whereas analysts had expected the rate to fall to 4.8%.

Average hourly earnings on private nonfarm payrolls grew 0.1% last month and 2.4% from a year earlier to $25.73 in August. However, this was less than July’s annual gain of 2.7%, which was the best in seven years.

August’s wage gains won’t fuel inflation, which had remained short of the Fed’s target range of 2% for a considerable period of time. Reaching the desired inflation level is one of the primary requirements for the Fed to hike rates. After the report, chances of a rate hike in September fell to 24% (read more: What's a Goldilocks Non-Farm Payroll Report?).

Low Borrowing Cost: Boon for Gold

As chances of a rate hike ebb, yield bearing investments like bonds and other fixed income investments turn out to be less attractive, while gold which bears no yield becomes alluring.

Further, the U.S. dollar dipped against major currencies on receding expectations of an imminent interest rate rise. There is an intrinsic co-relation between gold prices and the U.S. dollar. Banks generally tend to invest more in gold when U.S. dollar falls in order to protect their money and hedge against uncertainties. This in turn increases the value and subsequently boosts the demand for gold (read more: The Effect of Fed Fund Rate Hikes on Gold).

Which are the Best Gold Stocks to Own Now?

Investors should cash in on the encouraging trend by buying gold mining stocks. This will give them a share in an enterprise that boasts of value creation.

Needless to say, demand for gold will improve as retailers like India and China will need more gold during the second half of this year, courtesy of the festivities. This brings us to the all-important question, which stocks to buy?

We have selected four gold mining stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was narrowed down with a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Barrick Gold Corporation (NYSE:ABX) engages in the exploration and development of mineral properties internationally, including the United States. The company has a Zacks Rank #2 and a VGM score of ‘B’.

Barrick Gold has been on the rise over the past 60 days, as estimates have risen from 48 cents a share to just 68 cents. The estimated earnings growth rate for the current year is 125.9%, way above the industry’s growth rate of 19.6%.

IAMGOLD Corp. (TO:IAG) develops and operates mining properties in North and South America, and West Africa. The company has a Zacks Rank #2 and a VGM score of ‘B’.

IAMGOLD has been on an uptrend over the past 60 days, as estimates rose from (10 cents) a share to 5 cents. The estimated earnings growth rate for the current year is 111.6% (read more: Why IAMGOLD Could Be a Potential Winner).

AngloGold Ashanti Ltd. (NYSE:AU) operates as a gold mining and exploration company. Its portfolio includes 17 mines some of which are located in the United StatesAngloGold Ashanti has a Zacks Rank #1 and a VGM score of ‘A’.

The company has been on an upward trend over the past 60 days, as estimates escalated from 82 cents/share to $1.13. The estimated earnings growth rate for the current year is 352%.

Harmony Gold Mining Company Limited (NYSE:HMY) conducts underground and surface gold mining. It is also engaged in related activities such as exploration, processing, smelting and refining. The company has a Zacks Rank #2 and a VGM score of ‘B’.

Over the past 60 days, Harmony Gold Mining has seen a rise in estimates from 41 cents per share to 75 cents. The estimated earnings growth rate for the current year is 400%.

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