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Coronavirus Outbreak Gives Gold a Boost: 5 Top Picks

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The outbreak of coronavirus in China, which resulted in investors’ concern over the recovery of global economic growth and left an impact on stock markets, boosted demand for safe-haven assets. The demand for precious metal gold, considered as a major investment option under market turmoil, also got a boost.

On Jan 23, future price of gold for February delivery surged $8.70 or 0.6%, to settle at $1,565.40 an ounce on Comex. That was the highest most-active contract settlement since Jan 7. Notably, gold price soared to a near seven-year peak of $1,610.90 per ounce on Jan 8, following the escalation in U.S.-Iran geopolitical conflict. After that, the price of this precious metal stayed above $1,550.

Coronavirus May Affect Global Growth

The Chinese authority has already confirmed that as many as 26 people have died due to coronavirus and the total number of confirmed cases in the country rose to 830. Additionally, the United States, Japan and South Korea, all reported confirmed cases of coronavirus following visits to China.

Coronavirus is the major outbreak of a disease in China after the spread of SARS pandemic of 2002 and 2003 in which more than 8,000 were affected globally and 800 died. Economists estimated that the Chinese economy was impacted by roughly 0.8% due to the SARS outbreak.

Coronavirus has forced the government of China to lockdown 10 cities with a total population of over 33 million. Certainly, this measure will jeopardize normal economic activities of a large number of people. China is severely suffering from a nearly two-year long tariff war with the United States. The recently signed interim trade deal was viewed as an opportunity to revive the sagging economy of the Asian giant.

Moreover, deterioration of the Chinese economy will significantly affect global export demand and therefore delay global economic recovery.

Other Drivers of Gold Price

Several major central banks, including the Fed are pursuing easy monetary policies, resulting in a lower interest rate. In fact, the European Central Bank and Bank of Japan have adopted a zero interest rate policy for more than a year.

Negative interest rate is forcing investors to park their money in other avenues rather than bank deposits and debt securities. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other assets.

Moreover, concerns over overvaluation equities in several large markets, chances of a no-deal Brexit and geopolitical unrest in the Middle-East, which may result in surging crude oil prices, could lead to market fluctuations.

Buying pressure on gold is likely to remain firm as investors will focus on precious metals as a store of wealth and hedge against market turmoil.  Additionally, central banks are buying gold for rapid balance sheet expansion, resulting in a gold price rally.

Strong Projections

According to a report by Goldman Sachs, the wealthy are stocking up on physical gold, as in bullion, coins and bars. The research firm raised its target price for gold to $1,600 per ounce in 2020.

Heritage Capital projected gold price in the range of $2,500, $3,000 an ounce in 2020, citing recessionary concerns and political uncertainty. Altavest estimated a rally in the $1,650 to $1,750 per ounce range in the months ahead. The world’s biggest hedge fund, Bridgewater Associates, recently projected a $2,000 per ounce price target for gold in 2020, citing global uncertainties.

Our Top Picks

At this stage, it will be prudent to invest in gold stocks with strong growth potential. We have narrowed down our search to five such stocks.. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past year.

BHP Group plc (BBL - Free Report) is engaged in the mining of copper, silver, lead, zinc, molybdenum, uranium, gold, iron ores, metallurgical and energy coal. The Zacks Rank #1 company has expected earnings growth of 10.9% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 60 days.

Osisko Gold Royalties Ltd. (OR - Free Report) is a mining company which is engaged in exploration and mining for gold and other precious metals. The Zacks Rank #1 company has expected earnings growth of 16% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.8% over the last 60 days.

Pretium Resources Inc. (PVG - Free Report) acquires, explores and develops precious metal resource properties in the United States. It primarily explores for gold, silver and copper deposits. The Zacks Rank #1 company has expected earnings growth of 106.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.2% over the last 60 days.

Royal Gold Inc. (RGLD - Free Report) acquires and manages precious metals stream and royalty interests, with a primary focus on gold. The Zacks Rank #1 company has expected earnings growth of 83.5% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year has improved by 2.3% over the last 60 days.

Golden Star Resources Ltd. (GSS - Free Report) is an un-hedged gold producer. It owns the Wassa gold project in Ghana and controls a number of gold exploration properties in West Africa. The Zacks Rank #2 company has expected earnings growth of 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 60 days.

Zacks Top 10 Stocks for 2020

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