Normally, gold investments represent risky and speculative ventures because their operations tend to focus almost exclusively on demand for precious metals. Obviously, without both industrial and retail demand, little point would exist in extracting useless commodities. Therefore, the surge in valuations for companies like Eldorado Gold (EGO) represents a point of interest. Indeed, EGO stock may signify a coming pivot in the global economy.
Conspicuously, while Eldorado shares enjoyed a solid performance on Tuesday – gaining nearly 2% of equity value – the benchmark indices printed red ink, as Barchart contributor Rich Asplund pointed out. Specifically, Asplund mentioned the following negative catalysts:
A sell-off in bank stocks Tuesday weighed on the overall market after JPMorgan Chase CEO Dimon said the U.S. banking crisis is "not yet over" and will be felt for years. Stocks were also under pressure on concerns the labor market is deteriorating after Tuesday’s U.S. economic news showed Feb JOLTS job openings fell to their lowest in 1-3/4 years.
Of course, the market also absorbed the many implications behind the surprise oil production cut sparked by OPEC+, the infamous alliance between the oil cartel and non-member oil-producing nations. Unfortunately, this narrative on the surface presents an inflationary backdrop as more dollars chase after fewer (critical) goods.
Seemingly in response, EGO stock represented one of the highlights of Tuesday’s screener for unusual stock options volume. Total volume reached 5,861 contracts against an open interest reading of 35,331. Further, the delta between the Tuesday session volume and the trailing one-month average volume came out to 890.03%. Drilling down, call volume was 5,671 contracts versus put volume of only 190.
In the past five sessions, EGO stock gained over 6%. Since the start of the year, shares soared more than 28%. In contrast, the S&P 500 index is up a little over 7% during the same period. Moreover, cynically positive circumstances may continue to bolster Eldorado Gold.
EGO Stock May Signal a Worrying Pivot Ahead
Regarding the employment narrative, Asplund mentioned that “Tuesday’s weaker-than-expected Feb JOLTS job openings and Monday’s economic news that showed the U.S Mar ISM manufacturing index contracted more than expected has pushed T-note yields lower and bolstered expectations that the Federal Reserve may be approaching the end of its interest rate hike campaign.”
Fundamentally, a pause in the hawkish monetary policy directive would be inherently positive for EGO stock and other resource-based investments. Since 2022, the Fed has aggressively raised borrowing costs to tame historically high inflation. However, with signs of negative action in the labor market, fewer dollars should chase after more goods, a deflationary prospect.
Unfortunately, the OPEC+ cuts throw the economy a curveball. Again, by itself, the reduction in critical resources imposes an inflationary backdrop on the global economy. As a result, the Fed may actually have to start hiking interest rates even more to combat escalating prices.
Keep in mind that we’re not talking about an inflationary force affecting an esoteric market like Sunrise Ruby rings. Rather, we’re talking about crude oil – the fuel that powers global transportation infrastructures. And while we can talk about electric vehicles, the reality right now is that not everyone can afford a Tesla (TSLA) or its equivalents. When oil prices rise, practically everyone must pay up.
Yet even with the prospects of further Fed rate hikes as a responding mechanism, gold has been one of the best investments to buy. Certain technical indicators suggest that EGO stock may continue its northward trajectory. If that’s the case, there are almost certainly fundamental factors triggering the rise in gold investments as a whole.
Put another way, the economy might pivot from merely focusing on Fed policy to gearing up for a possible rough landing. Otherwise, the strong interest in gold seems to lack apparent sense.
Eldorado Gets Support from Analysts
Currently, Wall Street analysts peg EGO stock as a consensus “moderate buy.” This assessment breaks down to three strong buys, one moderate buy, five holds and one moderate sell. Interestingly, the assessment was slightly better three months ago. Back then, the breakdown was four strong buys, one moderate buy and four holds.
As well, some of the more recent analyst views have admittedly been pessimistic. However, as myriad concerns start to pile up, the fear trade may undergird EGO stock. Therefore, investors should keep it on their must-watch list.
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.
