I really don’t like the idea of the proverbial table pounding because of its potential to make one look stupid. But since I already do a good job of that as it is, I’m going to bat for Kinross Gold (NYSE:KGC) and KGC stock.
Kinross Gold stock has huge upside potential. I believe this is the case even with its already massive move. Since the opening price of this year, KGC has skyrocketed over 58%. That might dissuade investors worried about holding the bag.
And to be perfectly honest, it’s a legitimate worry. Back during the last precious metals rally in 2011, the spot gold price hit an intra-day record above $1,900. In addition, silver closed in toward $50 before both metals spectacularly crashed. As you might guess, KGC stock took a beating. Earlier this decade, shares were trading in double-digit territory.
But as understandable as those fears are — and despite my own gold-bug fascinations — this time is different. I mean it. With an underlying bull market for precious metals, multiple miners will go up just because. However, a reputable name like Kinross Gold stock will have both strong gains and staying power.
Here are three reasons why I’m uber-bullish on gold and KGC stock.
The Federal Reserve Is Gifting You a Bull Run in KGC Stock
Lately, we’ve been hearing a lot of news about the inversion of the yield curve. Under the textbook definition, this is a situation where the yield for the longer-maturing 10-year U.S. Treasury bonds dips below the quicker-maturing 2-year Treasurys.
Why does this matter? Basically, it doesn’t make economic sense. If I buy a 10-year note as opposed to one maturing in two years, I’m tacking on greater risk. Obviously, if I hold an investment for 10 years, there are many things that could go wrong. Therefore, I’m rewarded with a higher payout for my risks.
But when the yield curve inverts, those that take less risk with two-year notes have greater reward. Thus, it disincentivizes buying the 10-year Treasurys. But what does this have to do with Kinross Gold stock? Nothing directly.
However, the key here is the Federal Reserve’s response. Naturally, it’s in their best interest to flatten the yield curve to fix this economic anomaly. But to do so requires cutting rates to push the two-year yield down below the 10-year yield. Monetarily, this creates an inflationary impact, which suits both gold and KGC stock.
And let me reiterate this point: the Fed has to do something. The central bank can’t let this circumstance just slide. Moreover, President Donald Trump has been all over the Fed like stink on poop. Either way, it’s all inflationary for Kinross Gold stock.
Mining Sector is Leaner and Meaner
During the initial aftermath of the Great Recession, both the smart and panicked money moved steadily into precious metals. Logically, this lifted the mining sector, including KGC stock. After all, the company’s products were growing increasingly more valuable.
But as I mentioned earlier, the insane bubble burst, sending the entire industry tumbling. For Kinross Gold stock, it meant transitioning from attacking the $20 level to dropping below $2.
Heck, from that perspective, KGC stock at just above $5 seems like a bargain.
But the more important point here is that Kinross Gold stock survived the massive onslaught. Several other companies, especially the speculative junior miners, did not. Therefore, what you have remaining from the bust are companies that have learned the lessons from 2011. Additionally, the broader selloff has weeded out most of the weak actors.
When you combine this dynamic with the rising bull market in gold, you have a catalyst for significant upside. And if you look at the longer-term chart for KGC stock, I think you’ll agree with me: Under this present environment, you probably won’t end up holding the bag at these prices.
Kinross Gold Stock Is Geopolitically Insulated
The U.S.-China trade war has a direct impact on companies exposed to the global economy. In many of these cases, it doesn’t matter how great an individual company is: Geopolitical headwinds have wreaked havoc on stable, robust names.
However, KGC stock is one of those rare investments that is largely geopolitically insulated. I say this because most of its projects — which account for over half of its metals production — are located on this hemisphere. In fact, excepting its Paracatu, Brazil project, most of its projects are here in the U.S.
Especially in this environment, this levering to U.S. territory is critical. Other mining companies may offer better production rates. However, if their projects become nationalized by an arbitrary government action, your investment is cooked. With Kinross Gold stock, this risk is substantially mitigated.
As of this writing, Josh Enomoto is long gold and silver bullion.