Gold Fields is Tuesday's IBD Stock Of The Day as the South African miner rallies along with gold prices closing back in on $2,000 per ounce. GFI stock, after finding support at a key level, could be poised for another run.
The resurgent gold price, which broke out a week before Russia's full-scale invasion of Ukraine, is obviously a huge part of the story. But a restructuring of Gold Fields' key South Deep gold mine in South Africa has panned out. Company productivity gains yielded a 24% increase in gold output in 2021, with further increases expected in coming years.
Companywide output rose to 2.34 million ounces, up 5% on the year. Output is seen peaking above 2.7 million ounces in 2024, helped by the 2023 start of production at its Salares Norte mine in Chile. However, the depletion of other mines is an issue beyond that point that the company is focused on addressing.
Gold Price Cross-Currents
In March, Goldman Sachs lifted its 2022 gold price forecast to $2,500 an ounce, up from $2,150. Purchasing by global central banks as well as ETFs are fueling demand, Goldman says.
A U.S. economic slowdown is part of Goldman's thesis, since that might mean the Federal Reserve won't have to raise its benchmark interest rate so high. Tuesday's consumer price index release, which showed tamer core prices, was good news for the gold price.
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Real, or inflation-adjusted, interest rates are key to the gold price, since they constitute an opportunity cost of holding gold. If real rates are at zero or negative, there's no opportunity cost. But if rates keep rising as inflation moderates toward the Fed's 2% target, Treasurys will grow more attractive relative to gold.
Last time the Fed started hiking rates in December 2015 proved a bottom for the gold price. The gold price didn't really take off, though, until late in 2018. That's when the combination of Fed rate hikes and the shrinking of its balance sheet nearly triggered a bear market for stocks, which were pricing in a severe slowdown.
However, this cycle could be a lot different. Inflation is way above target and wage growth is running hot.
Still, geopolitics could fuel the safe-haven bid for gold. Some commentators have discussed the "weaponization" of the dollar as a driver of gold demand for foreign governments and central banks. That is partly in reference to U.S. and European sanctions on Russia that denied it access to much of its reserves held internationally in foreign currencies.
GFI Stock
GFI stock initially broke out from an 11.89 buy point from a 38-week cup-with-handle base on Feb. 14. The breakout really gained steam on Feb. 17, as GFI stock posted full-year 2021 earnings. That day also say the gold price spike as President Biden warned of a potentially imminent invasion of Ukraine.
GFI stock ran up as much as 45% from the buy point, peaking as the gold price topped out around $2,050. It peaked at 17.20 on March 8. Chasing a breakout can be perilous for investors. However, GFI's stock chart reveals an orderly pullback to its 21-day line. A weekly chart shows GFI stock finding support at its 10-week moving average last week.
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On Tuesday, GFI stock rose 0.7% to 15.30, nearly bumping up against the down-sloping trend line from its March 8 peak. A move past the trend line, perhaps clearing Monday's high of 15.75, could be actionable.
Also on Tuesday, IBD Leaderboard stock Newmont rose 1.4%. Meanwhile, the VanEck Gold Miners ETF play rose 1.1%, near a 40.23 cup buy point.
