While the major indices posted a mixed performance on Monday, speculative gold-mining enterprise B2Gold (BTG) jumped conspicuously higher. Though the benchmark S&P 500 only moved up a modest 0.16%, BTG stock gained nearly 3%. What’s more, the gold miner represented a positive highlight in the derivatives market.
Following the close of the March 27 session, BTG stock stood among the top securities for unusual stock options volume. Specifically, total volume hit 6,549 contracts against an open interest reading of 47,459. Further, the delta between the Monday session volume and the one-month average volume came out to 658.86%.
Drilling into the details, call volume reached 6,530 contracts whereas put volume only mustered 19 contracts. Therefore, the put/call volume ratio amounted to 0.0029, on paper dramatically favoring the bulls.
Notably, the Barchart Technical Opinion indicator points to BTG stock being a 72% buy. It notes a strengthening short-term outlook regarding the possibility of maintaining the current direction. Further, longer-term indicators fully support a continuation of the trend.
To be fair, the indicator also warns about BTG stock trading in highly overbought territory; thus, a trend reversal may be in the cards. However, at the moment, analyst opinion remains robust. In the current month, B2Gold commands an overall “strong buy” assessment, based on nine strong buys, two moderate buys and one hold.
Also, among the five most recent analyst ratings, their average price target stands at $5.58. At time of writing, this forecast represents upside potential of over 43%.
Another notable factor to consider is B2Gold’s most recent earnings report. In its fourth quarter, the company generated adjusted earnings per share of 11 cents, missing the consensus EPS target of 14 cents. However, the mining firm managed to post revenue of $592 million, up 12% on a year-over-year basis. The result was in line with Wall Street’s estimate.
Are these stats enough to justify bullishness in BTG stock? Quite possibly, the answer is yes although this has mixed implications for the broader economy.
Enthusiasm for BTG Stock May Reflect Fear Everywhere Else
Regarding gold’s myriad applications, the medical, electronics, automotive, defense and aerospace industries often utilize the yellow metal. However, with many central banks implementing interest rate hikes (which raise borrowing costs), economic activity in several sectors and regions slowed. For instance, China’s auto sales slipped last year. Here in the U.S., the segment suffered demand challenges.
Therefore, the industrial uses of gold risk diminishment. Yet the price of gold jumped significantly higher throughout March while the banking sector (in particular the U.S. regional ecosystem) suffered severe losses due to fears of a contagion. It appears, then, that the fear trade has taken front and center stage for the precious metals complex.
As MarketBeat noted, “[g]old prices have moved higher during the current financial crisis in conjunction with a decline in the value of the U.S. dollar.” Importantly, gold and the greenback compete as safe-haven assets. However, with credibility questions rising amid the shaky U.S. financial system, gold has become much more attractive to concerned investors.
Granted, it’s perfectly logical for jittery market participants to choose the proven intrinsic value of gold over fiat currencies. At the same time, gold is just gold – it hires no workers, generates no earnings and thus pays no dividends. For lack of a better expression, it’s a “dumb” commodity.
And that right there should tell you something. Historically, the investment community generally eschews gold (and gold-related investments) for well-backed equities. At the end of the day, effectively managed enterprises tend to recover from downcycles. When they do, their active productivity helps catalyze broader commercial activities.
With gold, it just sits there. Don’t get me wrong, it’s a valuable “sitter.” But no matter what happens in the economy, gold will remain a commodity.
Essentially a Vote of No Confidence
Yesterday, I warned Barchart readers that investors should read between the lines regarding unusual options volume for embattled financial firm Deutsche Bank (DB). Despite exhortations that all is well, investors have heard this story before. They’re right to be concerned.
And so it is with BTG stock and its ilk. Likely, based on the combination of technical and fundamental factors, B2Gold should rise higher. However, its potential bullishness should be taken with a cautionary tone. When investors choose commodities over human productivity, it’s a sign that the masses believe greater pain lies ahead on the horizon.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
