Randgold Resources (LON:RRS) Ltd (NASDAQ:GOLD) reported a great set of results on Monday and on the back of this, prices gapped higher and broke through a key level of resistance.
With the shares continuing to rally higher this week, it’s fair to say that the gold miner’s recovery is taking shape.
Before looking at this week’s price action in greater detail, let’s take a step back just over a month. As the above chart highlights, the shares broke above a descending trend line in December of last year and price action thereafter has confirmed a change in market structure with a clear uptrend emerging.
Earnings Review
Focusing on this week’s earnings update, it won’t come as surprise that there weren’t many negatives; in fact, Randgold ‘only’ hitting the lower end of its production target was about it.
Positive takeaways were aplenty, with year-end pre-tax profit increasing 54%, total cash cost per gold ounce falling 5.9% and new projects being given the go-ahead just to name a few.
If we narrow the focus a little, the picture becomes even rosier. Quarterly production and average gold price over the quarter were up 26% and 11% respectively. Subsequently, Q4 net profit jumped 76%; small wonder that management were able to hike the dividend by 52%!
Bullish Fundamentals or Dollar Weakness
However, let’s not get ahead of ourselves. This is Randgold and as with all gold miners, macro forces are of course at play.
The recent ‘V’ shaped recovery in gold prices largely reflects the stalling of the ‘Trump Trade’. As investors have shifted out when they expect Trump to increase US infrastructure spending/cut business regulation, so to have they moved their expectations of when the next rate rise will come. With commodity prices negatively correlated to the dollar this has fuelled gold’s positive run in 2017.
So where does this leave us? Randgold’s share price has been locked in an uptrend since the start of the year. However, with the shares currently trading well above their 20 day exponential moving average, prices look a little overstretched. Moreover, yesterday’s US jobless claims falling to 43 year lows further supports the case for a near term rate rise, a headwind for Randgold.
With this in mind, we are waiting a little bit longer before looking to jump on-board Randgold’s recovery.