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In the first half of 2017, gold prices have gained around 8%, continuing the momentum of 8.5% annual gain in 2016. Meanwhile, the U.S Dollar has slipped 6.4% in the same time frame, its worst patch in six years. It is a well-known fact that gold and the US dollar usually have an inverse relationship. While the Fed’s rate hike impacted gold’s run, the weaker US dollar and other geopolitical concerns helped boost its safe haven demand. Also China and India witnessed renewed physical gold demand this year, after observing a lackluster demand last year due to economy-specific reasons.

Recently, the International Monetary Fund (MF) trimmed forecast for the US economy from 2.3% to 2.1% for 2017 due to policy uncertainty. A slower-than-expected growth for the US economy would be positive for gold.

Gold prices will get support from retail demand for gold in the second half of the year, which is seasonally strong for India and China due to festival and wedding related buying activities. The World Gold Council anticipates demand from China to grow at least another 20% by 2017. Indian gold demand rose in the first half of 2017 as gold imports rose in June to its highest level in two years to $4.9 billion, benefiting from pent-up demand. Further, customers built up inventories before the implementation of the Goods & Services Tax (GST). Though the imposition of GST poses a short-term challenge, a more transparent economy, expectations of bumper crop following a good monsoon will boost gold demand consequently. The World Gold Council anticipates consumers to buy between 650 tons and 750 tons of gold during the year.

While demand will remain strong, supply of this precious metal has already attained peak levels as per reports. The combination of lower mined gold supply and higher demand could eventually help prices navigate north.

Performance So Far, Predictions for Q2

As per the Zacks classification, the gold mining industry comes under the broader Basic Materials sector. Per the latest Earnings Trends report, so far only 5% of the companies in the sector (9.4% of total market capitalization) have reported second-quarter results, putting up a 10.4% decline in earnings on the scoreboard. Taking into account all the companies that are yet to report, a 1.6% increase in earnings is projected for the quarter backed by a 3.2% rise in revenues. It is worth a mentioning that the Basic Materials sector is one of the 10 broader Zacks sectors that are anticipated to log positive growth this quarter. The growth graph is expected to pick up in the later part of the year with the 4.9% growth forecasted for the third quarter and 17% for the fourth quarter.

Consequently, backed by the overall positive projections this quarter, it makes sense to bet on gold miners that have the potential to beat earnings in their upcoming releases. A beat backed by earnings growth and a positive outlook for the industry would instil investor confidence in the stocks leading to immediate price appreciation.

How to Make a Choice?

Given the plethora of players in the mining industry, picking the right stocks is a daunting task. But our proprietary methodology makes it fairly simple. One can narrow down the list with the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP, which is the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of delivering earnings surprises in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.