While gold miners have been out of favor for a long time, that may be about to change. As uncertainty in the market is increasing, gold prices are poised to rise. The rise should be followed by gold miners (GDX), which are essentially leveraged plays on gold prices.
As we mentioned earlier, gold miners, on the whole, have emerged much stronger, leaner, and more competitive after their mistimed deals at the peak of the cycle. These factors should also support them fundamentally.
For more on these miners’ fundamental performances, read Which Gold Miners Show Upside Potential after Q2 2018?
Leveraged to gold
While a surge in gold prices would benefit almost all gold stocks, some stocks have more leverage to gold prices than others. Kinross Gold (KGC) and Yamana Gold (AUY) have shown the most sensitivity to gold prices since the start of 2016. Investors, however, should be aware of the current geopolitical issues faced by Kinross, due to which the stock has underperformed its peers year-to-date. Yamana, on the other hand, looks like a turnaround story, with its Cerro Moro mine being the game changer.
Goldcorp (GG), Newmont Mining (NEM), and Agnico Eagle Mines (AEM) have strong production pipelines that are supportive of higher growth going forward. Since its merger announcement with Randgold Resources (GOLD), Barrick Gold (ABX) also seems to have emerged from its recent operational issues, which could help the stock rerate.
For investors who want less volatile and more defensive exposure among precious metal equities, royalty and streaming companies (GOAU) might fit the bill. These companies don’t own the mines themselves but get somewhat fixed income streams after making up-front payments for the production rights to mines. Franco-Nevada Corporation (FNV) and Royal Gold (RGLD) are engaged in this type of business.
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 metals prices. But while these funds may multiply their gains in the event of an upside in gold prices, the downside will also be higher if precious metals prices come under pressure.
Read Five Gold Stocks Analysts Love and Five Not So Much for more on analysts’ take on miners.