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What Should Gold Investors Do after the US Election Surprise?

Anuradha Garg - Author
By

Aug. 18 2020, Updated 4:40 a.m. ET

Which gold miners could gain?

A surge in gold prices after the surprising US election results could benefit almost all gold stocks. However, some have more leverage to gold prices than others.

Among senior gold miners, Kinross Gold (KGC) and Barrick Gold (ABX) have shown the most sensitivity to gold prices since the start of 2016.

Among intermediate gold miners, Iamgold (IAG) and Coeur Mining (CDE) have risen the most due to their higher sensitivity to gold prices. In the short term, these stocks could rise more due to their higher leverage.

Stocks such as Goldcorp (GG), Franco-Nevada (FNV), and Eldorado Gold (EGO) have underperformed the VanEck Vectors Gold Miners ETF (GDX) year-to-date. But they have the potential to play catch-up in the medium to long term because their fundamentals remain strong.

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Diversify risk

Until the market settles down and the policies of the new administration are understood, uncertainty is likely to prevail in the market. This, in turn, should support precious metals such as gold, silver, platinum, and palladium.

The likelihood of a Federal Reserve rate hike in December could diminish, which should also be positive for precious metals. However, gold investors should note that the Fed is now likely to hike rates. If it doesn’t happen this December, there is an increasing likelihood that it could happen in early 2017, which could pressure gold. In that event, conservative investors can consider safe-haven gold-backed ETFs such as the SPDR Gold Shares ETF (GLD).

More leveraged exposure

For more risk-tolerant investors, leveraged ETFs such as the ProShares Ultra Silver ETF (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT) provide high leverage to changes in precious metal prices.

While investors could multiply gains in the event of an upside in gold prices, the downside is also higher if precious metal prices come under pressure.

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