Gold has been climbing to levels not seen since 2013. And as the cost of the precious metal continues to climb, so does the price of gold stocks. I can make a case that gold stocks should be a part of every investor’s portfolio. But in volatile times, many investors flee to the safety of gold as part of the “Fear Trade.”
The fear trade is an amalgam of three fears that are prominent among investors. These are the fear of war, the fear of a recession, and the fear of the unknown.
As 2020 began, the fear of a recession was muted, but starting to grow. The Covid-19 pandemic brought recessionary fears front and center. And along with it, there is a growing sense of uncertainty.
The uncertainty in our economy is not just about the effects of the novel coronavirus. Remember, we’re still in an election year. That means that gold looks like a solid bet for the rest of 2020, and maybe further than that.
But at this point, quality is important. A lot of speculative money is jumping in, and contrarian sentiment suggests that some gold stocks may be in for a downturn.
With that in mind, here are four of the best gold stocks that you can invest in right now.
- Barrick Gold (NYSE:GOLD)
- Newmont Corporation (NYSE:NEM)
- Wheaton Precious Metals (NYSE:WPM)
- Vectors Gold Miners ETF (NYSEARCA:GDX)
Barrick Gold (GOLD)
Year-to-date gain: 46%
Barrick Gold is known for its portfolio of high-quality (tier one) gold and copper assets. The significance of this is that the price of Barrick has a close correlation with the spot price of physical gold.
Both gold and copper production were either at the upper end or above the company’s guidance in 2019. That set the company up for a successful 2020. There is some concern that some of the company’s mining operations could be shut down due to the Covid-19 pandemic. However, the company cites its experience in combating Ebola outbreaks around its African operations as evidence of its preparedness for any appearance of Covid-19 near its mines.
So far that appears to be the case. In mid-April, Barrick provided investors with preliminary estimates that showed it sold 1.2 million ounces of gold in the first quarter and 100 million pounds of copper.
The mining company has operations in five countries on three continents. In early March, the stock was up 10% and has just kept on climbing since then.
Newmont Corporation (NEM)
Year-to-date gain: 46%
Newmont Corporation is up nearly 43% in 2020 and over 110% in the last 12 months. The company just posted a stellar earnings report in February which continues to position them to be a sector leader by 2025.
Investors were eagerly awaiting the company’s first-quarter earnings to see how its $10 billion acquisition of Goldcorp would affect revenue. I guess you could say it’s going pretty well. The company reported net income rose to $822 million for the three months ending on March 31. This was a year-over-year gain of over nine times from the $87 million the company reported for the same period in 2019.
And the company is reporting no coronavirus-related disruptions of mining operations. However, the company has said they are limiting the number of workers at the mines to prevent exposure and possibly overwhelming the health care systems in the areas in which the mines operate.
NEM ended 2019 with over 100 million ounces of gold in reserve. This is over 50% more than the 65 million ounces it had on hand at the end of 2018.
Wheaton Precious Metals (WPM)
Year-to-date gain: 45%
Wheaton Precious Metals is not a traditional miner, but it can be more stable than mining stocks because Wheaton employs a streaming model. This means that the company doesn’t mine the metals directly. Rather, they buy the output from other miners at a predetermined price.
Essentially, Wheaton is a safe middle ground between a pure play mining stock and a diversified exchange traded fund (ETF). WPM stock may not climb as high as other stocks when the price of gold moves higher. However, when the price of gold goes down, WPM shareholders enjoy lower lows.
But that hasn’t been the case so far in 2020. Instead, WPM stock has tracked nicely with the bigger miners. Wheaton stock is up nearly 40% in 2020 and is closing in on its all-time high. And with sentiment for gold expected to go higher, there is reason to be bullish on WPM stock.
In addition to the stock’s outstanding performance in 2020, WPM is up over 100% in the last 12 months.
Vectors Gold Miners ETF (GDX)
Year-to-date gain: 18%
In some cases, purchasing physical bullion is out of the reach of average investors. It’s also not always the most convenient way to own the precious metal. Gold stocks allow you to participate in the gold market without having to possess the physical asset. And one way to get exposure to the precious metal is by buying stocks in gold mining companies.
One way to get exposure to a large swath of mining stocks is through one of the leading exchange-traded funds (ETFs). One of the best parts of owning this ETF, however, is that Barrick and Newmont (two of the stocks in this presentation) make up 30% of the ETFs weighting. That means that as the outlook for these two companies remains bullish, so should the ETF.
In the 12 months ending in February 2020, the Vectors Gold Miners ETF delivered a total return of 32.6%, more than double that of the S&P 500. Since then, the ETF has trimmed back those gains but still sits at 15% gain for the year.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.