Gold stocks are selling at attractive discounts relative to historical measures even as gold prices have bounced back 10% from their 52-week lows. This is offering investors unique opportunities to buy equity assets that could hold or even rise in value in the case of a prolonged bear market or recession, including stocks such as Newmont Mining Corp. (NEM), Goldcorp Inc. (GG), Barrick Gold Corporation (GOLD), and ETFs like VanEck Vectors Gold Miners ETF (GDX) and the SPDR Gold Trust (GLD). Rising gold prices and a mining industry that has become more rational in recent years through a rash of mergers has made the gold sector an alluring bargain, according to Barron’s.
5 Ways to Play Gold Stocks
· Newmont Mining Corp., NEM
· Goldcorp Inc., GG
· Barrick Gold Corporation, GOLD
· VanEck Vectors Gold Miners ETF, GDX
· SPDR Gold Trust, GLD
What it Means for Investors
One bullish indicator is the technical charts. The 50-day moving average of gold’s price recently crossed above its 200-day moving, a phenomenon that traders have dubbed the “golden cross,” according to CNBC. Investors interpret the golden cross as a bullish signal indicating that gold could rise even higher. Cornerstone Macro technician Carter Worth believes that gold is seeing “the prospect of an important breakout” and if the price can break above the $1,300 level, then a further rally to $1,350 is likely.
A rising gold price also could help lift gold stocks like Newmont and Barrick, two of the largest gold miners in the world. While both stocks aren’t exactly cheap when compared to current earnings, they offer what investors call “option value”, meaning they give investors exposure to higher earnings as gold prices rise. “Barrick and Newmont are vehicles for generalist investors to position for a higher gold price,” says J.P. Morgan analyst John Bridges.
Billionaire Jeffrey Gundlach, CEO and CIO at DoubleLine Capital, also sees a weaker U.S. dollar helping to give gold a boost. He recommends one ETF to exploit that. “To be aggressive, you could buy the VanEck Vectors Gold Miners ETF [GDX]. It is a leveraged play on the price of gold,” he told Barron’s.
To be sure, many investors have bet wrong in recent years that gold stocks would rise sharply. But that may change as producers become more efficient and as the bull stock market turns into a bear. If the economy enters a recession and the Federal Reserve decides to reverse course and cuts rates, then even a weaker dollar will also be bullish for gold.