Best gold stocks to buy amid surging prices
14:31, 30 July 2020
Gold prices broke out to historic all-time highs and the commodity is poised to test the key psychological level of $2,000 (£1,532, €1,696) an ounce. What does this mean for investing in gold stocks? What about investing in gold miners stocks?
Gold recap: breaking above 2011 highs
The price of gold picked up momentum in July and broke above its prior all-time high of $1,920.30 an ounce that was hit way back in September, 2011. The commodity is benefiting from economic and geopolitical concerns that typically force investors to flee towards gold and, perhaps to a lesser extent, silver along with other physical commodities.
Gold prices and real yields also move in opposite directions. The US Federal Reserve’s move to keep its benchmark rate near zero, coupled with chatter of negative rates in Europe and Japan, represents another catalyst for gold.
Wondering what gold stocks to buy? This article serves as a good summary on how to invest in gold stocks and an introduction to some of the best gold miner stocks.
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Best gold stocks: industry titan Newmont Mining
Colorado-based Newmont Mining is the world’s largest gold mining company with a rich history dating back to 1921. Newmont is the 120th largest company within the S&P 500 index and claims to have the largest gold reserves of any gold company at more than 100 million ounces.
But what makes Newmont one of the best gold stocks to buy is its geographical exposure. Approximately 88 per cent of the company's entire mining operation is based in the US and Australia. These are among the two most stable countries in the world in terms of business continuity.
Taking a look at the one-year Newmont chart, the stock bottomed at $33 in March and has since doubled in value. At the time of writing (July 29), Newmont's stock is trading at $67.89 which is slightly below its 52-week high of $70.30 that was established earlier in the summer.
Near-term investors and traders may want to wait and see if Newmont will reclaim its prior high and break above the $70 level before buying amid expectations of a fresh breakout.
Mostly gold company: Polymetal
Polymetal is a Russia-based precious metal mining company but listed on the London Stock Exchange. The company is the 45th largest component of the FTSE 100 blue chip index.
Approximately 85 per cent of Polymetal’s revenue is derived from gold with the other 15 per cent coming from silver operations. Polymetal solidified its status as one of the top gold stocks after showing a 30 per cent year-on-year increase in its second-quarter results. The momentum should continue not only for Polymetal but for all the gold stocks to own, assuming their fixed costs stay the same.
The Polymetal stock chart shows the stock bottomed just below £10 in March and rebounded to around £17 in April. It took some time for Polymetal's stock to break above this resistance level and did so in late July en route to start testing the £20 level.
Investors may be tempted to take advantage of the stock’s current momentum and play it safe by placing a stop loss at around £15.
Index tracker: VanEck Gold Miners ETF
The VanEck Vectors Gold Miners ETF is an exchange traded fund designed to give investors exposure to the price and yield performance of the NYSE Arca Gold Miners Index. This ETF gives investors exposure to a portfolio of companies that operate within the gold mining industry. Consider it a mini portfolio of the top gold stocks to invest in, including previously mentioned Newmont Mining.
The only drawdown to investing in an ETF is it gives investors exposure to what could be a combination of hot, neutral, and cold stocks. As such, the ETF could generate a total return that may not compare to owning one individual stock.
But the opposite also holds true as owning a basket of stocks could be safer than owning one or two poor performers. In fact, many investors have opted recently for professionally managed ETFs given their perceived profile of being safer.
Ask yourself: do you want to invest in one gold stock or many? There is no right or wrong answer as it depends on individual risk tolerances and investment objectives.
The ETF broke through its prior resistance level of $37 and clear momentum helped propel the ETF to above $41 a share. Encouragingly, the moving average is sitting comfortably below the ETF at around $38 a share.
A reasonable trade after clear momentum might be to sit back and wait for any signs of cooling off. But the downside does not have to be much and an appropriate buying target would be where the ETF traded at just a few days ago at around $39 per share.
An appropriate risk management would call for a stop loss near the June levels of around $33 a share.
Another US play: Kinross
Kinross Gold Corp is a Canada-based gold and silver mining company that should be included in any list of gold stocks to invest in. Five of the company’s mines are located in the US and, similar to Newmont, this is an important differentiation for any gold stock analysis.
To better understand the buying opportunity in Kinross' stock, it would be necessary to pull up a multiyear chart. Shares of Kinross traded at $6 a share in 2016 and haven't tested these levels again until 2020.
Kinross broke above $6 a share in April and momentum pushed it above $7.50 by the middle of May. But the stock then lost momentum and briefly tested the $6 level – only to reverse course and hit new multiyear highs near $9.
The near-term trend is clearly to the upside so investors may want to similarly wait to see if the stock cools off a bit. Investors may want to consider buying the dip if Kinross' stock falls back to the $7.50 level.
Conclusion: gold dictates the action
Naturally, the price of gold will dictate the performance of gold stocks. If the strength in gold continues, gold stocks will go up because they are able to command a higher selling price for their product. The opposite holds true as falling gold prices implies miners receive less money for their products.
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