lunes, 22 de julio de 2019

lunes, julio 22, 2019
Why Gold and Gold Mining Stocks Are Appealing

By Andrew Bary 


Photograph by Michaela Handrek-Rehle/Bloomberg



Gold prices hit their highest level since 2013 this past week, an indication that investors increasingly view the often-maligned metal as a good alternative to paper money and government bonds at a time of accommodative monetary policies around the world.

Gold climbed to $1,446 an ounce before ending on Friday at $1,425. The metal is up about 1% on the week and 12% so far this year, but remains well below its peak of $1,900 an ounce in 2011.

With gold rallying, gold stocks got a lift. The VanEck Vectors Gold Miners exchange-traded fund (GDX) gained 7% for the week, to $27.98. It is up 32% this year, outperforming gold.

Mining stocks tend to be more volatile than gold because their earnings are sensitive to changes in the price of the metal. The largest two stocks in the Van- Eck ETF are Barrick Gold(GOLD) and Newmont Goldcorp(NEM).

Barron’s argued in a cover story last September that gold, then trading near a low for 2018 at around $1,200, looked appealing, as did depressed gold stocks.

Gold tends to do well when inflation-adjusted interest rates are low. That is the case now, with $13 trillion of government bonds (mostly in Europe) carrying negative interest rates and the benchmark 10-year Treasury note at just 2.06%. The Federal Reserve, meanwhile, appears certain to cut short rates later this month; the only question seems to be how much.

Ray Dalio, founder of the world’s biggest hedge fund, Bridgewater Associates, recently promoted gold as an investment that does well “when the value of money is being depreciated and domestic and international conflicts are significant.”

Gold is also the anti-dollar. President Donald Trump wants a weaker dollar to make U.S. exports more competitive. And gold looks cheap relative to Bitcoin, which has more than doubled this year, to around $10,000.



Historically, gold has been a store of value and a reasonably good inflation hedge. There are an estimated six billion ounces of gold in the world, worth more than $8 trillion. Gold newly minted each year represents less than 2% of the total supply. Many major producers are struggling to maintain output given a dearth of world-class projects and political and environmental obstacles. Central banks led by Russia had their highest first-quarter purchases of gold since 2013.

Gold stocks aren’t cheap, but they rarely are. Investors typically give them “option” value, as earnings tend to get a boost when gold prices rise. Barrick Gold, at $17, is up 27% this year and now trades for 39 times projected 2019 earnings of 44 cents a share, while Newmont, at $39, changes hands at 28 times estimated 2019 earnings of $1.39 a share.

Barrick could be the better bet. Both companies are benefiting from the combination of their large Nevada operations, which should produce $500 million in annual benefits, with Barrick getting more than 60%.

CIBC analyst Barron’s argued in a cover story last September that gold, then trading near a low for 2018 at around $1,200, looked appealing, as did depressed gold stocks.

Investors may want to get direct exposure to gold through ETFs like the SPDR Gold Shares(GLD). Then there are mining-stock ETFs like the GDX and the VanEck Vectors Junior Gold Miners ETF (GDXJ), as well as individual stocks.

Gold exposure of 5% to 10% in a portfolio might not be a bad idea now.

0 comments:

Publicar un comentario