Is It Time To Take A Second Look At Gold Stocks Like Barrick And Goldcorp?

Chris Lau, Kapitall: Gold stocks have been hammered by a climbing market and rising currencies. Is it time for a turnaround?

A traditional rule of thumb is that investors usually buy gold when they're less confident in currencies or the stock market. However the converse is also true, and gold prices are having a hard time holding on to their value in a world when so many countries are printing lots of money.

Read more about Gold from Kapitall: Hedge Funds Watching these 5 Gold Mining Stocks if the Dollar Falls

Even worse off are gold miners, who depend on stable prices to make mining activity worthwhile. Instead, overall costs escalated, costs for exploration went up, and balance became strained. So, should investors still hang on to gold stocks? 

Barrick Gold (ABX), Newmont (NEM), and Goldcorp (GG) are just a few miners whose shares are down around 50 percent in the last year alone: 

Click on the interactive chart to view stock prices over time. 

Investors seem less interested in assigning a premium to gold because of its role in backing up country currencies. The market looks pretty content with the notion that printing money may go on indefinitely. Unfortunately, much of the world is still unsure as to wether this policy is actually creating any prosperity or stimulating economic activity.

Some would say that it has only served to strain balance sheets worldwide. So any further inflation may be beneficial for gold companies. A recovery in gold prices, stimulated by inflationary fears, would mark an end to the decline in this sector.  Barron’s noted that gold mining stocks are at their lowest levels since 2001.

China influences gold prices

Recent decisions from China could impact gold in a positive way as well. The country recently  said it would be reducing the scope of its intervention in foreign equity markets. As late as October, China has been seen  selling US Treasuries. Both decisions could potentially hurt the US dollar, and conversely raise the value of gold.

Still a hedge for everything else

The negative fundamentals for gold miners have yet to reverse, but gold will be an attractive asset class for investors wanting a hedging position. Gold remains a hedge against a drop in the stock market, a decline in the US dollar, and moves by China to liberalize its currency.​

 

(Written by Chris Lau, a Kapitall Contributor. All data sourced from Zacks Investment Research.) 

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