Lingering inflation will remain a catalyst for gold mining stocks
Let’s face it, over the last several years, growth-minded investors have had many other shiny objects to chase. But for all the cries of "this time it’s different," many investors are finding out that "the more things change the more things stay the same" is a more apt cliché. And with consumer and producer prices continuing to increase, many investors are looking to preserve the gains in their portfolios.
That’s when gold shines brightly.
Over the last three years, the spot price of gold has increased by 31.9%. And according to ResearchandMarkets.com, the global gold mining market is forecast to grow at a compound annual growth rate (CAGR) of 3.1% from now through 2026.
That may not sound particularly exciting. However, here’s something I wrote in August 2021 about the relationship of the price of gold to the S&P 500:
"In the last 12 months, the S&P 500 is up 32.3%. In that same time period, the spot price of gold is down 8.4%. Typically, gold and equities have an inverse correlation. So it’s not surprising that gold is down. But it’s a bit curious that gold isn’t down even more."
My point at the time is the same now. Gold has a solid, and rising, floor. So it would seem that investing in physical gold would be a solid choice. And since the onset of the COVID-19 pandemic, industry analysts have noted an increase in the demand for physical gold.
However, that demand also bodes well for gold mining stocks that are experiencing faster growth than the price of gold itself. And mining stocks give investors exposure to actual companies that have growth opportunities and dividends.
The counterargument is that gold will lose its appeal when the Federal Reserve raises interest rates. Historically, that’s a fair argument. But for all the speculation of a 50 basis point increase perhaps even before the Fed meets in March, it doesn’t seem like the Fed really knows what it’s going to do. And publicly, many of the Fed presidents are suggesting a "measured approach"” will be the order of the day.
That suggests that gold still has time to shine. And here are three gold mining stocks that are poised to grow along with demand for physical gold.
1. Barrick Gold
Barrick Gold (NYSE:GOLD) stock is up 11% for the year. And that’s on top of a dividend that currently yields about 1.76% and has been rising over the past couple of years. Barrick is one of the largest miners in the world and has been seeing its production grow steadily in the past year. And when the company posts earnings on Feb. 16, 2022 it’s expected to show that it met its production target for the third consecutive year.
The stock has an attractive P/E ratio of 18.29 which is below its historical midpoint of around $24 per share. And the consensus 12-month price target for GOLD shows it reaching a new all-time high of $33.75.
2. Kinross Gold
Kinross Gold (NYSE:KGC) stock is flat for the year. However, the company has a consensus price target of $10.03 which would be a 77% gain from the current price. And investors are also getting a dividend yield of around 2.1%.
Like Barrick Gold, Kinross has a strong production story. In the last earnings report, the company issued forward guidance for production to increase from 2.1 million ounces in 2021 to 2.7 million ounces this year and 2.9 million ounces in 2023. Furthermore, management issued guidance of 1,110 an ounce for their all-in-sustaining cost. Therefore it would take a substantial collapse in gold prices to erode what appear to be strong earnings and free cash flow (FCF).
3. Royal Gold
Royal Gold (NASDAQ:RGLD is not a dedicated mining play. Instead, the Colorado-based company is engaged in the acquisition and management of business interests related to precious metals. The company’s portfolio includes companies that are delivering revenue and profits along with firms that are still in the exploratory stage, but show significant potential.
Essentially, investors are buying a hedge against extreme fluctuations in gold stocks. As you might expect, the stock doesn’t carry as robust of a price target. At $136.90, it’s only offering about a 26% gain. However, investors will get a reliable dividend that has increased for 21 years and has a 1.29% yield.