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With Gold Prices Surging, Here are 4 Gold Stocks to Buy

Posted on Thursday, August 29th, 2019 by Chris Markoch

It's not exactly the Gold Rush of the 1800s, but investors are fleeing to the safety of gold in ways the market hasn't seen since 2013. Many positives are working in favor of the yellow metal. First, there’s the yield on the 10-year U.S. Treasury note which recently fell below 2%. Investors also are keeping a close watch on the stock market. The major exchanges are being whipsawed as the United States and China exchange rhetorical volleys. And the Federal Reserve looks likely to become even more accommodative and lower interest rates. The overall message that investors are receiving is that fiat currency is going to have a rough go of it.

Gold is always a safe harbor in volatile markets

When there is so much uncertainty in the market, gold does well. And 2019 is no exception. Since January, gold prices have surged 19.4%. But what has gold investors excited was when the precious metal cracked $1,400 an ounce in July. That was a new 52-week high and a level that gold has not hit since 2013.

From a trend perspective, gold is fairly predictable. When it hits a new high, it tends to move even higher. Call it the FOMO (fear of missing out) effect or what have you, but once investors see that gold is moving higher, they jump on the train. Check out this chart from Stansberry Research:

 

6-Month

1-Year

After 52-week high

8.1%

18.5%

Typical return

2.5%

5.0%

Source: Stansberry Research

The takeaway is clear, gold does "okay" in any market, but when it's trending up, it takes off.

How to play the rise in gold prices

Of course, you can buy physical gold. However, investors who want a slightly less risky option can look at gold mining stocks. While gold has done well, the gold mining sector has done even better, showcasing a 54.9% gain as opposed to the 13% gain in the S&P 500. Mining companies have high capital expenditures and so some analysts prefer to look at the sector’s forward 12-month EV/EBITDA multiple. The gold mining industry multiple is 8.0 as compared to the S&P’s multiple of 11.3. Here are four ways to invest in gold mining stocks:

  • Barrick Gold (NYSE:GOLD) – One way to invest in gold mining companies is to invest in the mining companies themselves. Barrick is one of the largest gold mining stocks and their stock is up over 50% in 2019. The company reported positive second-quarter earnings. The earnings report included an expectation that the company’s full-year gold production will come in at the top end of its previous guidance range, while the costs would come in at the low end. The company is also expecting a boost in both cost savings and overall production from its joint venture with Newmont Goldcorp.
  • Franco-Nevada Corp (NYSE:FNV) – Another way to play gold mining stocks is by investing in streaming companies. FNV partners with mining companies, providing the capital these companies need for production and exploration. In exchange, the mining company agrees to sell a certain portion of the mine’s production to the streaming company. The success of these companies is linked to the success of the mines and FNV is among the best at that. This year alone the stock is up nearly 40% with year-over-year improvement in earnings of 34.19%.
  • Northern Dynasty Minerals (NYSE:NAK) – For investors who are open to more risk, the gold mining sector includes speculative stocks such as NAK. Investors may be waiting a long time to see a payoff from NAK, however, as speculative stocks go, they have an interesting story that surrounds the Pebble Project. Interest in the stock has been accelerating in recent years due to the company's interest in this area which some experts believe holds some of the largest measured and indicated reserves of gold and other precious metals. Estimates suggest 71 million ounces of gold could be potentially available for eventual extraction. But, the company faces an uphill battle to get the project into development. However, NAK just closed an $11.5 million bought deal that gives it the financial resources to move ahead with the engineering, feasibility and environmental studies that it needs to move ahead in the permitting process.
  • For investors who prefer the fund route, I suggest the VanEck Vectors Gold Miners ETF (NYSE:GDX). This fund has over $11 billion in assets under management and is invested in nearly four dozen gold mining stocks including Barrick Gold and Newmont Goldcorp (NYSE:NEM). Every company in the GDX must get at least 50% of its total revenue from gold mining and related activities. This means that streaming companies such as FNV may be part of the fund’s asset mix. The ETF is weighted by market cap and, while Canadian mining stocks make up about 50% of its portfolio, the ETF also features U.S., Australian, and South African mining companies.

 

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Barrick Gold (GOLD)$16.89-1.6%1.18%48.26Buy$16.54
Franco Nevada (FNV)$97.06-1.0%1.03%82.96Hold$109.30
Northern Dynasty Minerals (NAK)$0.52-1.9%N/AN/ABuy$3.00
VanEck Vectors Gold Miners ETF (GDX)$26.97-2.4%0.37%N/AN/A$0.00
Newmont Goldcorp (NEM)$39.80-0.5%1.41%29.48Buy$44.03

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