Zacks Industry Outlook Highlights: Barrick Gold, AngloGold Ashanti, Goldcorp, Yamana Gold and Kinross Gold

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Jun 04, 2014, 09:30 ET

CHICAGO, June 4, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Gold, including Barrick Gold Corporation (NYSE:ABX-Free Report), AngloGold Ashanti Ltd. (NYSE:AU-Free Report), Goldcorp Inc. (NYSE:GG-Free Report), Yamana Gold, Inc. (NYSE:AUY-Free Report) and Kinross Gold Corporation (NYSE:KGC-Free Report).

Industry: Gold

Link: http://www.zacks.com/commentary/32834/

After a lackluster 2013, which represented the end of the 12-year bull run for gold, the yellow metal somewhat regained its shine in 2014. Concerns about the economy and geopolitical tensions acted as catalysts to gold prices which shot up to a high of $1,388 per ounce in the first quarter. It remains to be seen whether the momentum is sustained through the balance of 2014.

In 2013, gold suffered a 28% drop, ending at around $1,200 per ounce -- the steepest plunge in more than three decades. It was not one event that affected the gold market in the year. A plethora of factors -- the Federal Reserve's taper or no taper confusion, conflict in Syria and the U.S. government's partial shutdown, and finally the taper call at year end -- pushed gold prices down throughout the year and tarnished its image as a safe haven asset.

A See-Saw Ride for Prices in 2014 So Far

Gold started 2014 at $1,223 per ounce and rose steadily, thanks to the growing demand for jewelry in China, the largest consumer due to the Lunar New Year. In mid-March, gold attained a six-month high of $1,388 per ounce. The 13% gain since the start of the year was stoked by Ukraine worries, fears of slowdown in China and weak U.S. economic data that drove investors to bullion as a safe haven.

However, the bubble soon burst with gold prices again falling below $1,300 per ounce in late March on stronger-than-expected U.S. economic data. After see-sawing on either side of $1,300, gold prices plummeted to around $1,250 per ounce in late May. Positive U.S. economic indicators boosted the dollar and pushed the gold price in the opposite direction.

Investors took the opportunity to shift from gold and flock to the stock markets instead, sending New York indices to record territory. Gold's safe-haven status during times of turmoil was tarnished by the waning concerns about Ukraine. Furthermore lower demand in China as well as India in contrast to the record levels last year also kept prices at check.

The wipeout of a chunk of gains by the metal witnessed earlier led to a heavy sell-off in gold stocks. Barrick Gold Corporation (NYSE:ABX-Free Report), AngloGold Ashanti Ltd. (NYSE:AU-Free Report), Goldcorp Inc. (NYSE:GG-Free Report), Yamana Gold, Inc. (NYSE:AUY-Free Report) and Kinross Gold Corporation (NYSE:KGC-Free Report) all took a beating.

Demand Flat in Q1

As per the World Gold Council, total gold demand in the first quarter of 2014 remained flat year over year at 1,074.5 tons, as increase in jewelry demand was offset by lower demand in the investment space and in the technology sector. The overall volume of 570.7 tons was the highest first-quarter volume recorded since 2005.

Jewelry demand maintained its bullish run for the seventh consecutive quarter. Demand went up 3% as prices fell. The advent of the Chinese New Year, followed by Valentine's Day, led to record first-quarter jewelry demand in China. Demand in India, however, dipped due to the ongoing restrictions on gold imports as well as the governmental elections. There was an uncertainty, particularly with respect to the import curbs and whether these might be lifted. Customers were reluctant to buy until a clear post-election picture emerged.

One of the most noteworthy developments in the quarter was in the investment sector. Demand dipped only 2%, a marked improvement from the substantial decline in the past few quarters. Net ETF outflows in gold were zero in contrast with the 177 tons of outflows witnessed in the year-ago quarter. Tensions in Ukraine made investors flock to gold as a risk diversifier which resulted in positive monthly inflows to ETFs in February, for the first time in over a year, which was repeated in March. However, it was short-lived as economic recovery in the U.S. as well as worldwide again led to outflows.

Demand for gold bars and coins bore the brunt of the unconducive circumstances, falling to their lowest levels for four years. Demand plunged 39% from record levels year over year. As gold prices steadily increased during the quarter contrary to expectations of falling further, investors maintained a cautious stance, awaiting a clearer price trend.

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