RBC recommends hedging volatility with gold stocks
RBC Capital Markets has made a case for owning gold and gold stocks (GDX) to hedge against market volatility. The firm mentions, “Gold has emerged as a short-term hedge against this volatility and we recommend investors add gold exposure especially with the equity valuations at multi-year lows. We maintain our flat $1,300 per ounce gold and $17.50 per ounce silver assumptions while marking to market for the first quarter of 2018.”
Stocks with lower valuations
RBC recommends that investors take advantage of the relatively low valuation of gold stocks. The firm rates five stocks as “outperform” based on valuations:
These four stocks form 22.7% of the VanEck Vectors Gold Miners ETF’s (GDX) holdings.
Barrick and Goldcorp released their 1Q18 results recently. While Barrick’s earnings were slightly better than expectations, Goldcorp slightly missed analysts’ expectations on earnings. Kinross is slated to report its results on May 9. While these three are gold miners, Royal Gold and Wheaton Precious Metals are royalty and streaming companies. Under this business model, they do not own mines, but they get somewhat fixed income streams after making upfront payments for production rights to mines. Their business model is quite conservative compared to that of miners.
While the gold complex as a whole has started to look cheaper than the S&P 500 Index (SPY) as well as its historical multiples, there are still opportunities in stocks. You can read Gold Mining Relative Valuations: What to Watch for more on valuations of various precious metal miners.