After meeting on Wednesday, the U.S. Federal Reserve announced it wouldn't be making any changes to interest rates at this time. However, the central bank said it was open to the possibility of reducing interest rates in the future if economic indicators warranted action. That statement pushed down yields on three-month and two-year bonds but resulted in bullish trading activity for gold and other precious metals.
In fact, the price of gold is flirting with $1,400 per ounce -- a level that hasn't been pierced since late 2013. That's having a positive effect on gold stocks, especially for small-cap companies most in need of a boost to operations.
Shares of Eldorado Gold (NYSE: EGO) led the pack with gains as high as 15.3%. Shares of IAMGOLD (NYSE: IAG) weren't far behind with an intraday high of 14.4%. Meanwhile, shares of Coeur Mining (NYSE: CDE), Yamana Gold (NYSE: AUY), and Hecla Mining (NYSE: HL) each rose over 11%.
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Investors are increasingly optimistic that higher gold prices are here to stay, given signs that the U.S. economy and global economy are slowing. That would provide a healthy bump in operations for gold producers and potentially help to de-risk investments in smaller, riskier companies struggling to reduce costs or in the midst of ramping up important (and expensive) growth projects.
For instance, Eldorado Gold reported all-in sustaining costs (AISC) of $1,132 per ounce of gold sold in Q1. That's relatively high. Higher selling prices and recent election results in Greece could provide more breathing room to the business.
IAMGOLD managed slightly better AISC of $1,086 per ounce of gold in Q1 2019 but encountered production issues at its Westwood mine due to increased earthquake activity. The company is making progress on cost-reduction efforts, which could deliver more value if gold prices keep trekking higher.
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Coeur Mining also ran into production hurdles in Q1 at its Palmarejo mine, which contributed 30% of total gold and 50% of total silver production in the quarter. However, that was expected, as the company mined through a lower-grade section of the asset. As Coeur Mining transitions back to higher-grade sections, gold and silver output will increase -- just in time to capture higher selling prices.
Meanwhile, Yamana Gold has for years been teasing investors with the growth potential of its Cerro Moro mine, which is now ramping up output. The company reported increases of 18% for gold and 235% for silver output in Q1, compared to the year-ago period. Production is expected to rise for the next few years while AISC, which settled at $1,098 per gold equivalent ounce in Q1, is expected to fall.
That leaves Hecla Mining, which has encountered the most setbacks of the group. The company's recently acquired mines in Nevada are not living up to expectations. Case in point: The assets reported an AISC of $3,056 per ounce in Q1, which pushed the company's total AISC for the quarter to $1,760 per ounce. That suggests the business needs a lot more than high gold prices to get back on course.
Gold prices often play off of economic indicators, so the recent surge to $1,400 per ounce isn't too surprising, given the circumstances. While higher selling prices can provide a tailwind to gold producers and provide more breathing room, investors shouldn't dismiss the risk of owning small-cap gold miners. Then again, most gold stocks never end up beating the returns of the S&P 500 over the long haul, which shouldn't be overlooked.
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