Why These Precious Metal Stocks Still Shine in Uncertain Times

The global economy is experiencing a period of heightened volatility. Inflation remains persistent, geopolitical tensions simmer, and interest rates continue to rise. In these uncertain times, investors seek assets to preserve capital and potentially offer growth. Gold has long been regarded as a haven during periods of economic turmoil, and its allure remains strong in the current market climate. 

Gold’s Role During Inflationary Periods

Throughout history, gold has been a reliable store of value during financial crises and geopolitical upheaval. Its intrinsic value, limited supply, and global recognition make it a sought-after asset when traditional markets falter. During past recessions, wars, and inflationary periods, gold has often negatively correlated with stocks and other risk assets. This inverse relationship reflects gold's role as a hedge, as investors move capital away from volatile assets and towards the perceived safety of gold.

Exploring Avenues for Gold Investment

Investors seeking exposure to the gold market can choose from multiple investment vehicles, each with unique characteristics and associated risks. Physical gold, exchange-traded funds (ETFs), and gold mining stocks offer distinct pathways for participating in the gold market.

Physical gold, such as bullion bars or coins, provides tangible ownership and may appeal to those seeking a direct connection to the asset. However, investing in physical gold involves practical considerations like storage costs, security measures, and insurance premiums. Gold ETFs present an attractive alternative to investors seeking a more convenient and cost-effective approach. ETFs are traded on stock exchanges, offering the advantages of liquidity and diversification.

SPDR Gold Shares

 The SPDR Gold Shares GLD is the largest gold ETF globally, with approximately $63.42 billion in assets under management (AUM). It seeks to track the performance of the London PM Gold Price and boasts an average daily volume of 7.20 million shares. Its expense ratio, the annual fund management fee, is 0.40%. This relatively low expense ratio makes SPDR Gold Shares a competitive choice for investors seeking exposure to gold without the burdens of physical ownership. The fund's one-year performance metric sits at approximately 23%, reflecting the strong performance of gold prices over the past year. This strong performance underscores the potential for gold to offer investors protection against inflation and economic uncertainty.

iShares Gold Trust

The iShares Gold Trust IAU is another prominent exchange-traded fund (ETF) that provides investors with exposure to the London Bullion Market Association (LBMA) Gold Price. While it is not as large as GLD, IAU holds approximately $28.78 billion in AUM, demonstrating its substantial appeal to investors.

IAU's average daily trading volume of 6.25 million shares reflects considerable investor activity and liquidity. This robust trading volume facilitates the ease of buying and selling IAU shares for investors, contributing to its attractiveness as an investment vehicle. IAU distinguishes itself through its lower expense ratio, set at 0.25%. Compared to similar ETFs, a lower expense ratio translates to a more cost-efficient investment option for investors. The lower expense ratio enhances IAU's appeal for investors seeking to maximize returns while minimizing management fees.

While ETFs offer a convenient way to gain exposure to gold, it is crucial to understand that investors in ETFs do not own physical gold. Instead, they own shares in a trust that holds the gold. This means that investors do not have direct control over the physical gold or benefit from any potential premiums that may arise from owning it.

Incorporating Gold Mining Stocks into a Portfolio

Gold mining stocks can attract investors seeking leveraged exposure to gold prices. However, careful stock selection is essential, as gold mining companies' performance is tied to the price of gold and their operational efficiency and financial health.

Newmont Corporation

Newmont Corporation NEM is a leader in the global gold mining industry. Its earnings report for the first quarter of 2024 delivered solid results. The company reported attributable gold production of 1.7 million ounces, demonstrating a solid operational output. This production resulted in over $1.4 billion in cash generated from operations before accounting for working capital adjustments.

Newmont's financial performance reflects operational efficiency. The company reported gold Costs Applicable to Sales (CAS) of $1,057 per ounce and All-In Sustaining Costs (AISC) of $1,439 per ounce, indicating a robust cost control strategy. These metrics are further enhanced by the performance of Newmont's Tier 1 Portfolio, which encompasses its most productive and long-life assets. The Tier 1 Portfolio achieved an even lower CAS of $1,000 per ounce and AISC of $1,378 per ounce, demonstrating the value and efficiency of these core assets.

Newmont is actively pursuing a portfolio optimization strategy, evidenced by the recent sale of its Lundin Gold Financing Facilities for $330 million. This transaction reflects a focus on monetizing non-core assets and maximizing shareholder value creation. The company remains on track to meet its 2024 production, costs, and capital expenditures guidance. Production is anticipated to be weighted towards the year's second half, reflecting the cyclical nature of certain operations and project timelines.

Barrick Gold

Barrick Gold Corporation GOLD also reported robust first-quarter earnings results that aligned with its guidance, positioning the company for continued success in achieving its full-year targets. The company's gold production is projected to increase steadily throughout the year. This growth is underpinned by the completion of the Pueblo Viejo plant expansion and the resumption of operations at the Porgera mine. 

Barrick's financial performance reflects strong profitability. The company reported a substantial year-over-year increase of 143% in net earnings per share (EPS) and a 36% rise in adjusted net earnings. Attributable EBITDA also experienced a 7% increase, reaching $907 million, demonstrating Barrick's ability to generate earnings and cash flow.

Barrick Gold is actively advancing four major organic growth projects, further solidifying its growth trajectory. These projects include ramping up the Goldrush gold mine in Nevada, expanding the Pueblo Viejo operation, developing the Super Pit project at the Lumwana copper mine in Zambia, and developing the Reko Diq copper-gold mine in Pakistan. 

Strategic Gold Allocation: Balancing Risk and Opportunity

Gold can be a valuable portfolio diversifier, offering a potential hedge against inflation and market downturns. The ideal allocation to gold varies depending on an investor's risk tolerance, investment horizon, and financial goals. Some advisors suggest starting with a 5% to 10% allocation. Increasing gold exposure may be prudent during periods of economic uncertainty or rising inflation. However, a lower allocation might be more suitable in stable markets with controlled inflation.

While gold offers potential benefits, investors should acknowledge its downsides. Gold does not generate income like stocks or bonds, and its price can experience short-term volatility. The decision to include gold in a portfolio is ultimately personal, but its historical resilience and diversification potential make it an asset worth considering, especially in today's uncertain economic climate.

The article "Why These Precious Metal Stocks Still Shine in Uncertain Times" first appeared on MarketBeat.