Investors of gold stocks — and especially speculative gold miners — are finally having their day in the sun. The much-maligned spot price of gold bullion is up 26% year-to-date. The yellow metal sparked a recovery just in time, reversing three consecutive years of losses. At its current value in the markets, physical bullion is inside 30% of its all-time record high. That’s in sharp contrast to the 37% loss incurred since the beginning of 2013.
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This of course has substantially positive implications for gold stocks. Various funds tracking the precious metal markets rebounded fiercely this year. In addition, gold miners rocked naysayers with phenomenal returns. The benchmark exchange-traded fund Market Vectors Gold Miners ETF (NYSEARCA:GDX) is already up triple-digits. Even more enticing, the summer season is traditionally the weakest for gold stocks.
Indeed, several pronounced selloffs have occurred during the summer. But since physical bullion demand usually picks up in the winter, there’s a good chance both gold stocks and gold miners follow suit.
Investors should also consider precious metals because the doom and gloom forecasts were terribly off the mark. One researcher even suggested that gold prices could fall to $350. The analysis was based on the assumption that bullion is an inflation hedge. Unfortunately for anybody that shorted gold stocks on that advice, the reality is much more nuanced.
Between 1971 — when President Nixon took the U.S. off the gold standard — and 2015, gold and inflation shared a fairly strong inverse correlation. In other words, as the dollar decreased in value, gold increased in value. But this relationship isn’t distributed evenly. In the 1970s and 1980s, the era of rapid dollar devaluation shifted more value to hard assets and commodity funds.
But in the current decade, precious metals and gold stocks have no discernible relationship with inflation rates. What does seem to be apparent is that fear, not inflation, is the driver. Gold stocks jumped considerably when the Brexit was announced. The move doesn’t appear to be a one-off incident, either, as the precious metals continue to move higher.
Not coincidentally, several international indices attempted to regain their Brexit-related losses, but without much success. The naysayers can scream all they want — gold stocks are off to the races. Here are three names you need to look at right now!
Gold Stocks to Buy: SPDR Gold Trust (ETF) (GLD)
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Gold is often regarded as a “barbaric relic,” and for good reason. While the Big Four banks in the U.S. are floundering in 2016, the SPDR Gold Trust (ETF) (NYSEARCA:GLD) has stormed to a 26% year-to-date performance. As the undisputed king of gold ETFs, GLD is the quickest and easiest way to capitalize on the fear on the streets.
Although investing in physical gold is undeniably more intriguing, GLD has attributes that gold bugs shouldn’t ignore.
First and foremost is convenience. Being bearish on the economy doesn’t have to entail hoarding physical assets. There’s a reason why bitcoin commanded the world’s attention as an alternative currency. In the age of digitalization, there’s a premium associated with on-demand services. GLD provides an immediate way to gain exposure to the bullishness driving gold stocks.
The other factor is that GLD is fungible. While precious metal experts make the claim that bullion is fungible — and it is — physical assets are not the easiest to trade. GLD, on the other hand, has a healthy market of buyers and sellers. True, if things really hit the fan, all gold stocks and certificates would be deemed worthless. But in such dire circumstances, financial assets will almost surely be the last priority on anyone’s mind.
The bottom line is this — with financial markets in turmoil, GLD really is as good as gold!
Gold Stocks to Buy: Barrick Gold Corporation (USA) (ABX)
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Not all precious metal investments are built the same. Sometimes, discernment within the industry is required to see the most profitability. Case in point are the gold miners.
Although rising spot prices for the metals are never a bad thing for producers, gold miners are first and foremost a business. Even if bullion prices skyrocket to record highs, nothing can withstand poor management. Fortunately, that’s not the case with Barrick Gold Corporation (USA) (NYSE:ABX).
There is no downplaying it — ABX stock is on fire! With a YTD performance just shy of 200%, ABX is among the 30 best publicly-traded companies of 2016. If that wasn’t enough, the legendary George Soros is bearish on the U.S. economy and bullish on gold.
One of the investments he’s using to actualize his thesis is ABX stock. While no one particular person should be used as the ultimate deciding factor, Soros is a whale who has tipped the markets to his advantage in the past.
Critics may point out that it’s not the shrewdest maneuver to buy a stock that has tripled in value. And I’ll freely admit that ABX is not a situation where you buy low and sell high. What it is, is a pure momentum play — buy high, sell higher. ABX has blown through two critical resistance barriers, first at $12, then at $18. More importantly, the upside pattern shows no evidence yet of breaking.
There’s seemingly no stopping the gold miners, and with Soros backing ABX in particular, it wouldn’t be surprising to see further gains.
Gold Stocks to Buy: Goldcorp Inc. (USA) (GG)
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One of the reasons why the bullishness towards gold stocks and gold miners may truly be different this year is resilience. Just prior to the release of a better-than-expected jobs report, Brent Crude Oil was hit hard. Commodity selloffs are usually a big hint of deflation — the prime enemy of gold. Also, a robust employment market allows the U.S. Federal Reserve to implement a hawkish policy.
Yet none of these things negatively affected Goldcorp Inc. (USA) (NYSE:GG).
Like other gold miners this year, GG stock has never looked back following a volatile January. Over the last 30 days, GG has tacked on roughly 9% in the markets.
For those weighting value more heavily than momentum, Goldcorp is “only” up 70% YTD. With several gold stocks raking in triple-digit returns, it’s more than reasonable to assume that GG still has plenty of room to run.
Goldcorp’s strength isn’t just about the technicals, however. Management has made a concerted effort to impose tighter financial controls, and the results are encouraging. The first quarter of fiscal year 2016 for GG notably shows reductions in the cost of good sold, leading to a 100% increase in gross margin year-over-year.
Even greater improvements were seen in operating and net margins. Thus, the company is better positioned to handle whatever comes its way.
And with gold prices on the rise, GG stock potentially jumps in the months ahead.
As of this writing, Josh Enomoto was long gold.
