Five Gold Mining Stocks To Avoid As Gold Prices Tumble

As the Fed ended an era of extraordinary monetary policy easing by hiking interest rates for the first time since 2006, it knocked the wind out of gold, with prices plummeting to six-year lows to $1,050 an ounce. It is a well-known fact that higher rates tend to weigh on gold, as it provides no yield and thus struggles to compete with interest paying assets in the wake of rising borrowing costs.

The Fed on Wednesday set the new target range for federal funds rate at 0.25% to 0.50%. The central bank also provided a relatively upbeat outlook on the world’s largest economy, indicating that the pace of increase in rates from hereon will be gradual.

The central bank also focused on the inflation outlook in its policy statement, suggesting that it might alter its course if its projection of a gradual rise in inflation doesn’t materialize as expected. This brings more bad news for gold, which is used as a hedge against higher consumer prices.
 
Within hours of the Fed announcement, gold prices went up. After years of speculation about the negative impact of a rate increase on the yellow metal, it appeared that the hike was already priced into the gold price. However, this upward trend was cut short abruptly. Gold for February delivery declined 2.5% to close at $1,049.60 an ounce on the Comex division of the New York Mercantile Exchange on Dec 17. The settlement was the lowest since Oct. 30, 2009 when the yellow metal ended at $1,040.40 an ounce.

This year so far, gold has declined nearly 10% on speculation that higher interest rates could dent the demand for non-interest paying gold. A stronger dollar, which is now near a two-week high against a basket of other major currencies, also put pressure on gold as a stronger dollar has an inverse relationship to commodity prices in general. Gold is priced in the U.S. currency and becomes more expensive to foreign buyers when the dollar appreciates.

Crashing gold prices to six year lows pulled down the share price of major gold mining stocks. On Dec 17, Barrick Gold Corporation (ABX - Analyst Report) shares tanked nearly 9.28% while shares of Kinross Gold Corporation (KGC - Analyst Report) tumbled 8.25% on that day. Goldcorp and Yamana Gold, Inc. (AUY - Snapshot Report) saw their shares decline roughly 7.75% and 7.22%, respectively.

The plunge in prices has dealt a severe blow to investor confidence for the shiny metal. The gold rout will also hit metals’ producers who are already reeling under a depressed pricing environment. Gold miners are trimming costs and shedding non-core assets to optimize their portfolio as they grapple with lower prices of the metal. Several of these gold producers are also saddled with significant debt. So, a price slump along with the rate hike is expected to make life even more miserable for these producers.

Amid this scenario, it is prudent to stay away from the beleaguered gold space. We have picked five gold-mining stocks that you should refrain from investing in at the moment. These stocks either have a Zacks Rank #4 (Sell) or a Zacks Rank #5 (Strong Sell) and have witnessed downward estimate revisions over the past few weeks.

IAMGOLD Corp. (IAG - Snapshot Report)

Based in Toronto, Canada, IAMGOLD is engaged in the exploration, development and operation of gold mining properties. It also explores for copper and silver. The company holds interests in four operating gold mines, as well as exploration and development projects located in Africa, South America and Canada.

The stock has lost 46.67% of its value year-to-date. The Zacks Consensus Estimate has gone south over the past 60 days for fiscal 2015. Analysts polled by Zacks expect the company to suffer a loss of 37 cents per share in fiscal 2015 and loss of 31 cents per share in fiscal 2016. IAMGOLD carries a Zacks Rank #4.

Pershing Gold Corporation (PGLC - Snapshot Report)

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