Why Gold Can Be A Glistening Addition To Your Portfolio Right Now

Key Points

• As a group, precious metals miners and related companies have advanced nearly 10% this month, and 40% since late September.
• Precious metals mining is one of the leading industries at the start of 2023, with gold companies leading the way.
• Gold is showing an inverse correlation with the U.S. dollar, rather than the broad equity market. 

 

If one corner of the market suddenly looks all shiny, you may be seeing the glitter of gold stocks such as Wheaton Precious Metals Corp. NYSE: WPM, AngloGold Ashanti Limited NYSE: AU, Yamana Gold Inc. NYSE: AUY, Alamos Gold Inc. NYSE: AGI and Iamgold Corp. NYSE: IAG.

All boast strong recent uptrends. 

As a group, precious metals miners and related companies have advanced nearly 10% this month and 40% since late September. Precious metals mining is one of the leading industries at the start of 2023, with gold companies leading the way. 

All the above companies are among institutional-quality gold miners that have been in rally mode in the past few months. Many mining companies are small and thinly traded but won’t benefit from the sustained rallies you may see in a stock that funds, banks, university endowments, and other big investors widely own.

Sure, you can often snap up some quick gains with low-priced, volatile stocks, but they generally require more frequent monitoring (as well as a dose of luck) than more stable, institutional stocks. 

Large Caps Boast Double-Digit Returns

The largest gold companies by market capitalization are Newmont Corporation NYSE: NEM, Barrick Gold Corporation NYSE: GOLD, Franco-Nevada Corp. NYSE: FNV, Agnico Eagle Mines Ltd. NYSE: AEM and Wheaton Precious Metals.

Each of those stocks has posted a 25% or higher return in the past three months. 

Franco-Nevada and Wheaton are the gold streaming and royalty companies. The others run mining operations.

A streaming company purchases the physical metals produced by a miner for a fixed price. It also provides financing for miners needing capital. A company with a royalty line of business receives a percentage of a miner’s revenue. 

So what’s going on here? It may seem to defy logic that gold is rallying at the same time as stocks, but that’s precisely why investors are rewarded for taking risks: If a market thesis such as “Gold always rallies when stocks are down” worked 100% of the time, then every investor would make piles of money by shifting out of stocks and into gold when equities decline.

Is Gold Really A Safe Haven From A Stock-Market Decline? 

In other words, the “safe haven” thesis is far from a sure bet. For example, a little over a year ago, when Russia invaded Ukraine and inflation was beginning to rear, plenty of pundits predicted that gold would rally as stocks fell.

As it happened, gold declined along with stocks, as did fixed income, the other so-called “safety” trade when stocks corrected. Market hunches and predictions.

The VanEck Gold Miners ETF NYSEARCA: GDX, which tracks the NYSE Arca Gold Miners Index, is up 12.74% since the start of the year. Its top holdings are Newmont,  Barrick, Franco-Nevada, Agnico Eagle, and Wheaton. 

Its ascent aligns with an increase in gold prices, which have risen 19% since late September. The ETF is up 33% since then. 

Part of gold’s rise is due to a weakened U.S. dollar. Another ETF, the Invesco U.S. Dollar Index Bullish Fund NYSEARCA: UUP is useful in gauging that trend. The UUP ETF has moved in the inverse direction of the gold ETF, and is down nearly 9% since September 30. 

Tracking Gold Vs. The U.S Dollar

Gold and other precious metals, including silver and platinum, are priced in U.S. dollars. Weakness in the dollar typically correlates to higher prices in metals and metals-related stocks. 

So rather than eyeing the broad equity market as a barometer for gold stocks, the U.S. dollar may be a more productive inverse indicator. 

It’s a good time to add gold stocks to your watch list, as most remain well off prior highs, and some, like mid-caps Gold Fields Limited NYSE: GFI and B2Gold Corp. NYSEAMERICAN: BTG are forming potentially bullish handles on cup-shaped patterns.

As of January 30, there’s almost an embarrassment of riches regarding gold stocks, with technical performance outpacing the broader market. 

Several stocks fit the bill if you want to narrow your selection to stocks that may be suitable for the long term or as a swing trade rather than a faster day trade. Franco-Nevada and Agnico Eagle as well as mid-caps Kinross Gold Corp. NYSE: KGC, Yamana, and Osisko Gold Royalties Ltd. NYSE: OR are all stocks with strong recent earnings growth and upwardly trending charts. That’s a solid combination when you’re seeking to add stocks from gold, or any industry, to your portfolio.