As concerns about the health of the global economy are starting to make themselves known, one asset class has started to shine in a big way. We’re talking about precious metals and gold stocks. The price of gold has steadily climbed and is now around $1313 per ounce. For the various gold stocks, this is a huge blessing.
After suffering from low gold prices for years, the steady climb is great news for the sector’s bottom line. That’s because the gold stocks make money on the difference between what it costs them to produce and what gold is trading at. The difference between the two price points is generally all profit for the major mining firms. So, the higher gold goes, the more money the miners will make.
With increasing volatility and uncertainty in the world as well as rising M&A, the gold stocks are sitting pretty in the current environment. Gold should stay steady and increase as the world’s economy begins to slow. Then it will be all gravy for the various gold mining stocks.
But which ones could be the best? Here are five gold stocks that should add some shine to a portfolio.
Barrick Gold (GOLD)
When it comes to gold stocks, bigger is often better. As a miner, you can use scale to reduce costs and boost efficiency at your mines. And with gold prices rising, the largest mining stocks are able to pull in a bigger spread when comes to all-in cash costs. So, when one of the biggest gold miners gets that much bigger, you pounce on the opportunity.
In this case, we’re talking about Barrick Gold (NYSE: GOLD )
GOLD was already a top-dog in the sector, but it’s getting even better. At the end of 2018 , Barrick made the bold move to acquire rival Randgold Resources. This buyout created the world’s biggest gold mining firm. Combined the new company will own five of the world’s top tier one gold mines. Tier one mines are prized as they are large, low-cost and have very long life-spans. The combination will help drive future profitability and production.
Speaking of that profitability, Barrick is already doing well in the current gold environment. All-in cash costs clocked in at $813 per ounce of gold for the first three months of 2018. With gold averaging nearly $1250 over that time, GOLD has been able to feast on the difference. Full year results including Randgold will be released at the end of February.
With a strong and growing dividend, lower cost potential and higher selling prices, Barrick is simply one of the best gold stocks to own.
Kirkland Lake Gold (KL)
Kirkland Lake Gold (NYSE: KL ) is a relative newcomer in the sector, but it’s already moving up the gold stocks ladder to be a huge winner and attract major investor attention.
KL owns four producing mines in Canada and Australia. And that’s a good place to be. With safety and standard mining rules in place, KL has been able to see some huge results in its short life-span. The firm’s strong production has it on pace to mine roughly 670,000 oz of gold this year . That’s a nearly 13% increase of 2017 numbers. For the full-year 2019, Kirkland expects that number to jump an additional 15%.
Meanwhile, the gold stocks mines are pretty low cost as well. Back in 2016, when it was ramping up its mines, KL’s cash cost was around $930. For full-year 2018, management at the gold miner expects that number to fall to just $760 and $680 for all of 2019.
Pulling more production at higher selling prices while your cost is falling is a recipe for success. No wonder why Kirkland stock surged by more than 60% last year. But with some of the best metrics in the entire sector and continuing rising gold prices, KL stock should be a winner over the rest of the year.
For investors, Kirkland may be unknown, but it won’t stay that way for long.
Coeur Mining Inc (CDE)
Truth be told, Coeur Mining (NYSE: CDE ) has long been the red-headed stepchild of the mining sector. The silver producer has typically been a penny stock and hasn’t really produced great returns for long term investors. However, the firm’s recent move — and its 15% jump in January — are looking to change that.
Historically, CDE has been a silver miner. But over the last few years, the mining firm has ramped-up gold production. Today, the yellow metal makes up more than 59% of CDE’s production . That’s a complete flip-flop with silver over the last decade — which is good for CDE because gold provides better margins.
And speaking of those margins, Coeur has been able to release lower costs as well. Since 2014, CDE has been able to reduce its all-in costs at its five mines by more 20%. With gold and silver prices rising, CDE’s lower cash costs will allow to pull in more per oz going forward. This helps explain why the stock has rocketed higher since the start of the year.
And it could keep going. With a strong balance sheet, plenty of reserves in the ground and expansion plans on the table, there’s no reason why this silver producer turned gold stock won’t see gains. It’s certainly a riskier play than Barrick or even Kirkland, but the reward could be greater.
Agnico-Eagle Mines (AEM)
Shortly after Barrick purchased Randgold, other big-time gold stock Newmont (NYSE: NEM ) made an offer for Goldcorp (NYSE: GG ). Gold stocks are now M&A targets. The question is, who could be next. The answer very well could be Agnico-Eagle Mines (NYSE: AEM ).
AEM owns eight mines are located in Canada, Finland and Mexico. These mines feature high-quality and easy-to-access ore. That’s helped Agnico-Eagle have some of the lowest all-in cash costs in the industry. According to AEM, the vast bulk of its current mineral reserves are able to be mined at total cash costs below $900 oz. And that number continues to fall as several other expansion efforts come online in the next year or two. All of this has helped AEM become a top-tier miner that features plenty of cash flows and a growing dividend.
This makes it very attractive to larger rivals looking to instantly beef up their holdings with high-quality gold reserves. And with a market cap of only around $10 billion, the gold miner is very easy to swallow. And even if a buyout doesn’t happen, AEM is still one of the best gold stocks to hold in a rising price environment.
For investors, AEM is the total package of potential and current gains.
iShares MSCI Global Gold Miners ETF (RING)
Given the opportunities for many gold stocks to see gains with higher prices, perhaps a broad approach is best. Typically, the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX ) is the first stop when it comes to broad gold mining stock exposure. However, the iShares MSCI Global Gold Miners ETF (NASDAQ: RING ) may be a better fund.
RING and GDX track similar indexes of global gold producers . However, RING is slightly more concentrated with just 37 different miners versus GDX’s nearly 60. That concentration hasn’t hurt the performance of RING. Over the last three years, the average annual return for the ETF has clocked in at around 16%. That’s roughly equal to GDX’s performance over that time.
But over the long haul, RING’s edge comes down to expenses. RING only charges 0.39% or around $39 per $10,000 invested. Meanwhile, GDX’s expense ratio clocks in at 0.53%. All things being equal — and for the most part, in this case, they are — RING should be able to outperform GDX as GDX has a larger expense drag. Even better is that RING is available to trade commission free at many brokerage firms such as Fidelity.
Given the lower fees and potential to save on trading commissions, investors looking to broadly play the gold stocks may want to pick the smaller RING over the popular VanEck fund.
At the same of writing, Aaron Levitt did not hold a position in any of the stocks mentioned.
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