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Gold is Pushing $2000: 2 Stocks to Trade the Breakout

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High inflation, a banking crisis, rising interest rates, and geopolitical tensions; it’s no wonder gold is finding a bid. Is this rally going to fade or is it signal of what is to come?

Gold is a bit of an oddball asset and is shrouded by conspiracy and half-truths. While commonly regarded as an inflation hedge, it doesn’t actually correlate very well with the rate of inflation. In 2022, we saw that during the worst bout of inflation in 50 years, gold prices were unchanged over the year. Nonetheless, gold has continuously grinded higher over the last two decades in line with the expansion of central bank balance sheets.

Gold, while not a great stand-alone investment can provide some valuable portfolio diversification. Its returns are generally quite lumpy, but often provides standout performance during periods of very high market stress.

Technical Setup

A long-term price chart of gold futures shows a compelling technical chart pattern has developed over the last 10 years. A prototypical cup and handle pattern indicates there may be more room to run for the yellow metal.

A monthly close above $2000 signals a breakout that can extend to $2400, although a reversal back into the range would invalidate the setup.

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Barrick Gold

Barrick Gold (GOLD - Free Report) , based in Toronto, Canada, is the largest gold mining company in the world. GOLD has many advanced exploration and development projects located across five continents. The company produced 4.1 million ounces of gold in 2022 and has 76 million ounces of proven and probable gold reserves.

Barrick Gold currently earns a Zacks Rank #3 (Hold), indicating a mixed earnings revision trend. We can see that the current and next quarter have seen some small revisions lower, but the current year and next year are looking higher. Furthermore, the major factor determining Barrick’s returns are going to be the price of gold. Thus, if we see continued strength in gold prices, Barrick should follow.

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So far this year Barrick Gold is up 8% and trading in line with the underlying commodity. Over the last year GOLD stock is down -22% considerably underperforming gold.

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GOLD is currently trading at a one-year forward earnings multiple of 20x, which is below the industry average of 22x and below its own five-year median of 21x. Additionally, Barrick Gold has a dividend yield of 2.3%, and has raised its dividend an average of 30% annually over the last five years. Barrick Gold’s dividend yield can make the stock more compelling than the underlying commodity because gold has no cash flow.

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Yamana Gold

Yamana Gold  is another Canada based gold producer. It operates both gold and copper exploration and development sites in North America, Brazil, Chile and Argentina.

Over the last five years Yamana Gold stock has performed quite well, outperforming both its respective industry and the broad market. AUY also offers a dividend yield of 2%, which it has increased by an average of 44% annually over the last three years.

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AUY boasts a Zacks Rank #2 (Buy), indicating upward trending earnings revisions. Over the last 60 days analysts have raised earnings expectations for all future earnings periods.

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The company’s EPS surprised to the upside by 25% last quarter. Additionally, AUY has a history of beating earnings expectations having missed only once over the last five years.

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Image Source: Zacks Investment Research

Currently trading at 19x one-year forward earnings AUY is above its three-year median of 17x, and below the industry average of 22x.

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Additional Picks

There are two additional options for adding exposure to gold. The first is through the most popular gold ETF (GLD - Free Report) , which does a good job of tracking the underlying price of gold.

The second option is the gold miners ETF (GDX - Free Report) . This ETF holds a portfolio of gold mining companies like the ones featured here. GDX is generally more volatile than the underlying commodity, which can be great if you time it correctly with a rally, or painful if the timing is poor.

With Gold breaking out above $2000 there is no doubt that we are going through unprecedented times. Even if you aren’t trading gold as it stands now, at the least it can be used as an indication of the state of capital markets. If investors are reaching for gold, you can assume uncertainty is on the rise.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

SPDR Gold Shares (GLD) - free report >>

Barrick Gold Corporation (GOLD) - free report >>

VanEck Gold Miners ETF (GDX) - free report >>

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