AngloGold Ashanti (AU) Stock Fell Today on Declining Gold Prices

By Tony Owusu

| 02/06/15 – 04:15 PM EST

NEW YORK (TheStreet) — AngloGold Ashanti
(AU – Get Report) shares closed trading down 5.62% to $12.26 on Friday as gold prices fell today on positive U.S. job growth numbers that may be a precursor to higher Fed interest rates.

COMEX gold prices for April delivery are down 2.08% to $1,236.40 per ounce while spot gold is down 2.29% to $1,235.91 per ounce in trading today.

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The lower prices may be the result of today’s strong jobs numbers as analysts suspect that an improving U.S. economy will spur the Federal Reserve to raise interest rates as early as June, according to the Wall Street Journal.

The U.S. economy added 257,000 jobs in January the Labor Department said today, beating analysts’ 237,000 job forecast.

TheStreet Ratings team rates ANGLOGOLD ASHANTI LTD as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

“We rate ANGLOGOLD ASHANTI LTD (AU) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The debt-to-equity ratio of 1.24 is relatively high when compared with the industry average, suggesting a need for better debt level management.
• The gross profit margin for ANGLOGOLD ASHANTI LTD is currently lower than what is desirable, coming in at 32.93%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.08% significantly trails the industry average.
• The company’s current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, ANGLOGOLD ASHANTI LTD underperformed against that of the industry average and is significantly less than that of the S&P 500.
• This stock’s share value has moved by only 22.23% over the past year. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
• AU, with its decline in revenue, underperformed when compared the industry average of 6.5%. Since the same quarter one year prior, revenues slightly dropped by 5.4%. The declining revenue has not hurt the company’s bottom line, with increasing earnings per share.
• You can view the full analysis from the report here: AU Ratings Report

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Here's a scary chart for gold bugs

Gold hasn't been shining recently.

The yellow metal fell yet again this past week. In fact, it has closed lower for its third week in a row. Its 5.1 percent loss during that period is its worst three-week performance since Nov. 7.

Things have been tough for bullion for quite some time already. The World Gold Council reported on Thursday that the demand for physical gold in the form of coins and bars were at five-year lows in 2014. The price for the metal is now trading where it was at the start of last year.

According to one portfolio advisor, gold's recent decline will continue because of an appreciating dollar and because of an increase demand for stocks and bonds.

"Gold is priced in U.S. dollars, so as the U.S. dollar goes up against other currencies, gold becomes much more expensive for investors outside of the U.S.," explained Erin Gibbs, equity chief investment officer at S&P Capital IQ Global Markets Intelligence. "That helps keep the price of gold down."

Since the start of the second half of last year, the U.S. Dollar Index – a basket of several major currencies versus the greenback – has soared 18 percent. Gibbs, who has over $15 billion in assets under advisory, also sees record-high stocks and a rallying global bond market as hurting gold.

"Gold is really just used as a safe haven when you see a lot of turmoil and uncertainty in either the equity or bond market," she said. "Though we may not have great stories right now, we don't have a lot of turmoil. It's actually pretty stable."

"Between these two effects, we're really going to see a continued bearish trend," concluded Gibbs.

The technicals are also grim for gold, according to one leading technical analyst.

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"You're still making a series of lower lows and lower highs off of the peak since 2011," said Craig Johnson, senior research analyst at Piper Jaffray. He views the gold's run-up earlier this year as nothing more than a relief rally that will face downtrend resistance, currently at $1,350 per troy ounce.

And that spells trouble for bullion.

"The downside objective is going to be about $1,050," warns Johnson, who is also president of the Markets Technicians Association. "That could probably be reached this year."

Johnson agrees with Gibbs that part of the reason for gold's impending doom will be due to other markets' success.

"The secular bull market that we have been calling for and that is really unfolding is still very much on track," he said. "Gold is not going to participate, and I would step aside."

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