Demand for safe-haven investment options such as gold is soft at present, owing to a strong U.S. economy and its significant progress on the trade front. However, the situation could change soon, as possible issues emerge on multiple fronts, threatening to distort investors’ optimism on stability in the U.S. equity market.
In such a scenario, investors could take a closer look at traditional safe-haven assets such as gold mining stocks.
Gold Could Climb Higher in 2020: Here’s Why
First, the broader S&P 500 Index gained 28.9% in 2019, marking its second-best one-year performance since 1997. Not only did equities hit record highs, but also investors defeated concerns over U.S.-China trade war and fears of a global economic slowdown. Now, this definitely makes 2019 a banner year, but doesn’t speak kindly of 2020.
According to research firm Bespoke Investment Group, since 1928, the S&P 500 has been able to return 6.6%, on average, in the year following a rally of 20% or more.
Second, 2020 being an election year, political uncertainty would be the backdrop against which stocks must try to thrive. Volatility in the stock market could be prominent because of political risks.
In fact, the Trump administration is already planning to start a partisan row over Medicaid this year, as reports emerge of officials trying to shortly introduce a means for states to block Medicaid grant. Per the Wall Street Journal, guidance could be released this month, which would access the Trump administration’s capacity to permit states the flexibility to make drastic changes to Medicaid.
In addition, rise in government borrowing is a major concern. In the quarter ending December, the government incurred a deficit of $357 billion, per the U.S. Treasury department. As a result, Federal budget deficit surpassed the $1 trillion mark in 2019 for the first time in a calendar year since 2012.
Third, growth in FAANG stocks in 2019 was instrumental in boosting the technology sector, which in turn pushed the broader index higher. In particular, Apple’s (AAPL - Free Report) 86.2% rally last year boosted the S&P 500’s overall gains. However, regulatory scrutiny by Congress and several government bodies could continue to bother the FAANG stocks in 2020.
These companies could continue facing allegations over antitrust activities, monopolistic practices and privacy issues. Some members of Congress even propose breaking these technology giants up. This has led to concerns over the sustainability of stock prices this year.
Finally, the International Monetary Fund (IMF) has a less optimistic outlook on global growth. The institution recently revised down its global growth rate forecastto 2.9% for 2019 from its October forecast of 3% and to 3.3% from 3.4% for 2020.
The IMF noted that there could be new trade tensions between the United States and the European Union and U.S.-China trade disputes could resurface.
In addition, the institution also stated that “projected recovery for global growth remains uncertain” as global growth continues to be dependent on “recoveries in stressed and underperforming emerging market economies.”
3 Stocks to Buy
Given that money is expected to flow out of the equities this year, and flow into gold, gold mining stocks have a fair chance of gaining.We have, thus, selected three such stocks that flaunt a Zacks Rank #1 (Strong Buy)
You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Osisko Gold Royalties Ltd (OR - Free Report) have moved 2.4% south in the last trading session to hit $9.50. But this Zacks Mining - Gold industry player’s expected earnings growth rate for the current year is 26.7% compared with the industry’s projected earnings growth of 19.2%. In addition, the Zacks Consensus Estimate for Osisko Gold Royalties’ current-year earnings has moved 4.8% north in the past 60 days.
Shares of Pretium Resources Inc. (PVG - Free Report) have moved 2.5% south in the last trading session to reach $10.29. But the Zacks Mining – Gold industry company’s expected earnings growth rate for the current year is more than 100%. In addition, the Zacks Consensus Estimate for Pretium Resources’ current-year earnings has moved 3.2% north in the past 60 days.
Shares of Royal Gold, Inc. (RGLD - Free Report) have moved 1.1% south in the last trading session to hit $112.88. But this Zacks Mining – Gold industry player’s expected earnings growth rate for the current year is 83.5%. In addition, the Zacks Consensus Estimate for Royal Gold’s current-year earnings has moved 2.3% north in the past 60 days.
All of the aforementioned companies have underperformed the broader S&P 500 over a month. Shares of Osisko Gold Royalties, Pretium Resources and Royal Gold have lost 0.4%, 6.7% and 6.4%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>