Gold regained its shine this month after a dismal year. It has risen about 11% since May 30, after dropping steeply at this time last year. Morgan Stanley (MS - Free Report) commodities strategist Susan Bates recently said that gold is the firm’s number one commodities pick.
Gold is generally seen as a safe haven investment in times of economic and monetary uncertainty. Gold makes the most sense to invest in when the dollar weakens, as it holds true value more steadily than unbacked paper currency. It also generally rises in times of geopolitical turmoil, as there is a higher risk to economic instability.
Many commodities experts have spoken about the high likelihood that the price of gold increases in the coming weeks due to both of the factors just mentioned. The DXY, which is the dollar index against foreign currencies, has fallen 1.85% over the last month. This has caused investors to put more money in gold in anticipation of its rise.
Rising geopolitical tensions in the Middle East have also helped gold climb. Two oil tankers were attacked earlier this month in the Gulf of Oman. Later a U.S. military drone was shot down in international airspace near Iran. This week President Trump authorized an attack by U.S. Cyber Command to cripple Iranian military command and control systems.
If these two issues continue or worsen in the near future, it is likely that gold will continue to rise. Some analysts are predicting the price to rise from $1430.15 to over $1,500 per ounce.
A great way to capitalize on this trend without getting into commodities trading is to buy stocks in companies that manufacture or handle gold. Below are three great companies that may rise in the coming weeks along with the price of gold.
1. AngloGold Ashanti (AU - Free Report)
AngloGold Ashanti is a South African gold mining company with operations in nine countries. It is currently the third largest gold producer in the world, producing 7 million ounces of gold. AU is currently a Zacks Rank #1 (Strong Buy) with Style Scores of “A” for Value and Momentum and “B” for Growth. It also has a terrific projected 19.44% EPS growth over the next 3-5 years due to reinvestment in new high-yield mine sites.
The year over year earnings growth for 2019 is estimated at 90.57%, a huge number for a 15-year-old company. AU also has a market beta of -1.1, meaning that it on average moves inversely to the market. If you think that this bull market may end soon and are looking to protect your portfolio, AU may be a great choice.
2. Agnico Eagle Mines Ltd. (AEM - Free Report)
Agnico-Eagle Mines Limited is a Canadian-based gold producer with operations, exploration, and development in Canada, Finland, and Mexico. Last year, AEM produced 1.63 million ounces and plans to expand to 1.75 million ounces in 2019. Analysts have upgraded earnings per share estimates for this year in the last 90 days from 0.45 to 0.51, a trend that shows positive movement for the company.
In the past, AEM has performed worse than the gold mining industry on average. However, it has performed 80% better than the industry in the past 12 months.
3. Royal Gold, Inc. (RGLD - Free Report)
Royal Gold, Inc. acquires and manages precious metals royalty and stream interests, with a primary focus on gold. The company contracts with mine operators to be able to purchase a portion of the metal that the mine produces at a fixed price, in exchange for an upfront payment. This means that the company is insulated from the costs and risks of mine operation. It also means that the company is highly exposed to gold market fluctuations. Which, if the gold market rises as speculated, will be extremely good for RGLD’s business.
RGLD has a P/E ratio that is higher than the industry ratio. However, this is likely due to RGLD’s stability of earnings. It is not subject to the extreme riskiness of discovering and exploring new gold mines. Investors are willing to pay more for this stock’s earnings, as the earnings have a lower risk of taking a dive.
In 2020, RGLD’s earnings are projected to grow by 33.3%. Zacks Consensus Estimates for 2020 EPS have also been on the rise over the past 90 days, from $1.83 to $2.04. Both of which are signs of positive share price growth.
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