It seems like lately, gold has lost its luster while the U.S. Dollar has got its mojo back. Thanks to unprecedented activity from the world’s central banks, over the past three months, the Dollar has gained 5% against the British pound, 1% against the Euro and the Australian Dollar and a whopping 14% against the Japanese Yen. Meanwhile, gold hit a four-month low just last week.
However, don’t expect this trend to continue.
With the latest Federal Reserve policy decision due out today, the consensus is that the Fed will stay the course with its bid to keep interest rates — and the dollar — low. On top of this, if the stock market continues to break down due to the earnings shakeout, some investors will undoubtedly seek out gold as a safe haven.
So while gold prices have taken a breather on short-term strength in the dollar, the general expectation is that they will perk up soon enough. But before you call your broker to cash out of stocks and reinvest in gold, consider this: Analysts at UBS (NYSE:UBS) and Deutsche Bank (NYSE:DB) expect 2013 to be the worst year for gold prices since 2000.
Investing in gold is more trouble than it’s worth. Now, it may be tempting to join the latest “Gold Rush” and buy up the metal itself, but I have a much more attractive alternative. Instead of buying gold outright, stick with fundamentally superior companies that deal with the precious metal.
These mining stocks not only benefit from higher prices for what they pull out of the ground, but from the flight to safety that happens when the markets get volatile. In an industry with almost 700 players, it seems difficult to isolate a well-balanced stock. But, with a little help from my free Portfolio Grader tool, I have done just that.
Canada’s Agnico-Eagle Mines Ltd. (NYSE:AEM), as you could guess, is in the business of exploring for gold. The company is best known for operating the LaRonde mine in Quebec, which has over 4 million ounces of gold in reserves. On top of this, the company deals in silver, copper, zinc and lead, and has properties in Canada, Mexico and Finland.
Shares of AEM gapped up Tuesday after the company announced that it is buying nearly 27 million shares of Sulliden Gold Corp Ltd for CAD 24 million. As its name suggests, Sulliden is another precious metals company that is currently developing a property in a gold-rich area of Peru. Agnico-Eagle Mines set its sights on Sulliden because as a strategic shareholder it gains exposure to a new mining jurisdiction.
Agnico-Eagle mining caught my eye because it outperforms the competition on several key fronts. When compared with the 626 other players in the Gold industry, Agnico-Eagle ranks:
- 112th for sales growth (top 15%)
- 68th for return on equity (top 10%)
- 28th for earnings growth (top 5%)
- 11th for dividend yield (top 2%)
Speaking of which, I like the stock for its 2.2% dividend yield. The company has declared a cash dividend for the past three decades—31 years, to be exact. We’ll likely see the company announce its next dividend when it reports first-quarter results on April 25.
So, if you’re looking for a gold play with low risk and favorable rewards, this is the place to be.