Privy investors are realizing that with the economy possibly heading into a recession, gold and gold miners are looking to be good bets. Gold could head significantly higher this year as the traditional idea that gold is a hedge. While the market may be volatile and concerns grow over economic health, the yellow metal tends to see a jump in price and moves opposite of the U.S. dollar.
If we really are heading towards a recession and inflation, it will be favorable for a higher gold price. We have plenty of uncertainty such as the spread of coronavirus and high unemployment figures to warrant economic concerns right now.
Many gold stocks have fortunately been immune to the volatility of the market but instead respond to the volatility of gold prices. If gold goes up, mining stocks tend to go up. If gold prices tumble, many investors have little patience to hold on to their gold investments, even in mining stocks. With gold prices fortunately soaring and expected to head even higher this year, now may be the best time to pay attention to gold miners.
Unlike mining stocks, gold demand data is kind of limited but public gold mining companies have financial statements that investors can analyze, and these companies are able to adjust their strategies, production environments as well as costs. With energy prices also down this year, gold miners are able to spend less to produce the shiny metal as oil prices tend to correlate to how much energy these miners spend on.
Noted before, if gold prices go up, gold miners tend to do well. Every dollar that gold rises above $1,500 tends to apply leverage to a gold miner’s share price. This is because the increase in price becomes a free cash flow for the producers. Gold has already surpassed $1,700 an ounce this year.
With the economic crisis looming, gold stocks are looking to be compelling investments for the long haul. Take for instance Kirkland Lake Gold (NYSE:KL), which has seen remarkable growth in the last few years. From 2016 to 2019 this gold miner has tripled its gold production, cut all-in-sustaining costs by almost 40% and doubled its net income. The company additionally quadrupled its free cash flow. Kirkland acquired Detour Gold recently and is now expecting to produce almost 1.5 million ounces of gold this year. When looking to buy gold stocks, you want to make sure that they have low debt, low AISC, large reserves, and even potential acquisitions.
Leading gold miner Newmont (NEM) has also been in focus as the stock hit a seven-year high this year. The company not long ago announced that it is going to install an autonomous haulage system at the Boddington mine that it owns in Australia. This $150M investment is expected to improve safety and productivity at the gold mine. The company also beat on both the top and bottom line in the fourth quarter and is aiming to realize $500 million per year of improvements in 2021. Newmont is also expecting to realize $1.4 billion in cash proceeds in Q1 2020.
Junior gold mining stocks have also been soaring, including IMC International Mining (IMCX) with shares moving as much as 100% from January 8 through February 10th. The VanEck Vectors Junior Gold Miners ETF (GDXJ) has been moving much higher since the beginning of March.
If the coronavirus pandemic continues to disrupt the global economy, gold prices along with the share prices of gold miners may continue to rally.