Five Gold Stocks to Buy as Ways to Profit from Rising Inflation

Paul Dykewicz

Five gold stocks to buy in pursuit of profits from increased inflation include some of the world’s biggest miners of the precious yellow metal.

The five gold stocks to buy in hopes of profiting from inflation feature three companies headquartered in Toronto, Ontario, a fourth based in Colorado and a fifth that has its home in Vancouver, British Columbia. Those five gold stocks to buy have not zoomed as markets have been slow to shift to traditional inflation-protection equities, but rising prices with expectations such momentum will grow should only boost the appeal of such companies in the months ahead.

However, price inflation is on the ascent and the Biden Administration and the Democrat-led Congress are planning a $4.6 trillion spending spree on infrastructure and a host of new programs that will deepen the U.S. national debt well beyond its current $28.7 trillion, up 23.2% from $23.3 trillion just 18 months ago. Specifically, the Democrat-controlled U.S. House of Representatives approved a $3.5 trillion budget bill with the promise of a vote by Sept. 27 on a bipartisan $1.1 trillion infrastructure bill previously passed in the U.S. Senate.

Five Gold Stocks to Buy Include Mining Companies and Funds Favored by Pension Fund Chairman

“I favor having a portion of a portfolio in gold or gold-related investments now,” said Bob Carlson, a pension fund chief who heads the Retirement Watch investment newsletter. “I believe the markets aren’t pricing in the likelihood inflation will remain above the modest levels experienced before 2020. Gold is one of the investments that will benefit once investors realize inflation will be sustained at a higher level than is currently priced into the markets.” 

Carlson expressed a preference for investing in physical gold, since higher risks are likely by taking on the additional volatility of owning shares of gold mining companies. In general, Carlson said he does not favor exchange-traded funds (ETFs) for investing in gold miners, since most of the funds invest in an index.

“The indexes include some companies you don’t want in your portfolio,” Carlson said.

Pension fund and Retirement Watch head Bob Carlson takes questions from Paul Dykewicz.

Gold Fund Composite Has Not Yet Signaled to Buy Precious-Metal Mining Stocks

“The trend over the past two weeks in gold mining stocks has been decidedly bullish,” said Jim Woods, editor of the Intelligence Report and Successful Investing newsletters, as well as the leader of the Bullseye Stock Trader advisory service. “Yet despite the recent move higher, we still have yet to see a significant break above key trendlines in our Gold Fund Composite.”

Woods tracks gold and precious metals miners with his indicator called the Gold Fund Composite, or GFC, which is a unique measure of mutual funds in the mining sector. When the GFC moves above key trend lines, it signals Woods that it is time to “buy” gold stocks. Right now, the GFC remains in “sell” status.

“Although rising inflation and negative real interest rates are good for gold and gold mining stocks, the sector has been volatile and largely stuck in a rather tight trading range,” Woods explained. “The best way to approach owning gold mining stocks is to catch them on an uptrend and ride their often-robust momentum higher. Conversely, being in mining stocks can be very volatile, so you need both a stop loss on any positions and/or a trend-following plan such as the one in my Successful Investing newsletter.”

Paul Dykewicz interviews stock picker Jim Woods, editor of Successful Investing.

Top Five Stocks to Buy Should Benefit from Inflationary Federal Spending and Policies

The precious yellow metal has struggled in the past year, with gold attempting to advance beyond $1,900 several times but falling back as buying interest eased. Maybe it could be time for gold to shine again, Mark Skousen wrote to his Home Run Trader subscribers on Sept. 7. 

Technical traders have noted that September tends to be a traditionally good time to buy gold. Even emerging markets guru Mark Mobius is recommending that investors put 10% of their portfolios in gold.

“Huge spending, multitrillion-dollar deficits and fears that the Federal Reserve will monetize the debt by printing more money are all bullish signals for gold,” commented Skousen, who also writes the Forecasts & Strategies investment newsletter, while leading the Five Star Trader, Fast Money Alert and TNT Trader advisory services. Skousen, named by SuperScholar.org as one of the Top 20 Most Influential Living Economists, clearly sees inflation climbing and has a track record of trying to buy into undervalued sectors and stocks before they start to soar.

Mark Skousen, a descendant of Ben Franklin, meets with Paul Dykewicz.

BoA Global Research Recommends Five Gold Stocks to Buy as Inflation Increases

Big gold entities that have rising free cash flow (FCF), defined as money available for a company to repay creditors or pay dividends and interest to investors after covering operating expenses, earned spots among BoA’s five gold stocks to buy. Inflationary pressures are starting to creep into cost structures for gold companies, just as they are for businesses in other industries, BoA wrote in a recent research note.  

Canada’s Agnico Eagle Mines (NYSE: AEM), of Toronto, Ontario, operates gold mines in Canada, Finland and Mexico, while also pursuing exploration and development activities in the United States. The company gained a place among BoA’s five gold stocks to buy partly due to its expected improvement in second-half 2021 operating performance.

The investment firm gave AEM an $80 price objective, based on Agnico Eagle trading at 2.25 times BoA’s estimated net asset value for the stock. Historically, North American gold producers have traded between 1-3 times NAV, with 3 times NAV sometimes given to organically growth-oriented gold producers.

Risks of AEM falling short of attaining that price target include potential commodity price weakness, any inability to secure financing for expansion or development projects, unforeseen operating problems and political risk in the countries where the company operates. Possible reasons for Agnico Eagle to exceed the price objective include commodity price strength, better-than-forecast operating performance and favorable changes in the political environment in the regions where it operates, BoA wrote.

Chart courtesy of www.StockCharts.com

Barrick Gold Earns a Berth Among the Five Gold Stocks to Buy

Canada-based Barrick Gold (NYSE: GOLD), of Toronto, Ontario, is a mining company that produces gold and copper with 16 operating sites in 13 countries. Keys for Barrick Gold include higher production output, coupled with reduced costs, equaling enhanced free cash flow in second-half 2021, according to BoA.

The investment firm assigned a “buy” recommendation and a $29.00 price objective to Barrick Gold, based partly on the stock trading at 1.50 times its estimated NAV of $19.35 per share. That estimate hinges on a 5% discount rate and 10-year average gold and copper price forecasts of $1,785 per ounce and $3.72 per pound, respectively.

BoA wrote that it could not give Barrick Gold a higher target price / NAV multiple due to the company’s stable, rather than rising, gold output. Potential downside risks to Barrick Gold achieving its BoA’s price target are potential commodity price weakness, any inability to secure financing for expansion projects, unforeseen operating problems, political or legal challenges in the regions where it operates, rising capital and operating costs and delays in the development of its growth projects.

Chart courtesy of www.StockCharts.com

Franco-Nevada Finds Place with Five Gold Stocks to Buy

Franco-Nevada (NYSE: FNV), a Toronto, Ontario, Canada-based, gold-focused royalty and streaming company with a diversified portfolio of cash-flow producing assets, benefits from favorable product price tailwinds. The stock also can appreciate amid mergers and acquisitions (M&As) in the gold arena, BoA wrote.

At a BofA Global virtual conference in mid-May 2021, FNV’s CEO noted the company’s Vale Royalty Debenture acquisition was a “tremendous opportunity” that gave Franco-Nevada exposure to world-class, long-life iron ore mines. Now, the M&A focus has turned back to gold and other precious metal opportunities, he added.

Franco-Nevada finances part of the capital spending on new mines for the companies it backs. BoA’s price objective for Franco-Nevada is US$163 per share and is based on the stock trading at 3.25 times the investment firm’s estimated NAV for the stock on a cash- and foreign exchange-adjusted basis. The investment firm gives a US$50.15 NAV estimate to Franco-Nevada, based on a 5% discount rate and 10-year average gold price forecast of $1,785 per ounce.

Based on a strong balance sheet and low-cost asset base, BoA gave Franco-Nevada a premium multiple. Franco-Nevada also benefits from its seasoned management team, BoA opined.

Chart courtesy of www.StockCharts.com

Colorado-based Newmont Nudges Way onto List of Five Gold Stocks to Buy

Newmont Corporation (NYSE: NEM), based in Greenwood Village, Colorado, United States, is the world’s largest gold mining company. Created in 1921, Newmont owns gold mines in Nevada, Colorado, Ontario, Quebec, Mexico, the Dominican Republic, Australia, Ghana, Argentina, Peru and Suriname.

The company’s performance in the second half of 2021 is expected to improve due to higher gold output and reduced costs, as well as enhanced prospects in its Ghana operation, BoA wrote in a recent research note. BoA’s price objective for Newmont is $80.00 per share, based on the stock trading at 1.75 times BoA’s estimated NAV of $46.00 per share. 

Possible reasons why Newmont may outperform BoA’s price target for it include stronger-than-forecast commodity prices, better-than-expected success at reducing costs, positive regulation and operating developments that outperform estimates. Potential hazards to Newmont meeting BoA’s price objective include the need to gain financing for expansion or development projects, unforeseen operating problems, political, legal or permitting challenges in areas where the company operates, rising capital and operating costs, and delays in developing growth projects. Nonetheless, BoA gave Newmont a buy recommendation.

Chart courtesy of www.StockCharts.com

Wheaton Precious Metals Wins Spot Among Five Gold Stocks to Buy

Canada’s Wheaton Precious Metals (NYSE: WPM), of Vancouver, British Columbia, boasts “strong free cash flow funding for its capital allocation priorities in the second half of 2021. BoA’s price objective for Wheaton is $55.00 per share and is based on the stock trading at 2.5x times the investment firm’s estimated net asset value (NAV) for the company.

BoA gave Wheaton Precious Metals a buy recommendation and a NAV of $22.00 per share, based on a 5% discount rate and a 10-year average silver and gold price forecast of $27 per ounce and $1,785 per ounce, respectively.

Possible risks to Wheaton Precious Metals attaining BoA’s price target for it include continued commodity price weakness, unforeseen operating problems at the mines on which its silver streams are based, financing challenges, political or legal challenges where it operates and project delays.

In a recent conference call with WPM management, its leaders said they see much new pressure on streaming opportunities. Even though Wheaton Precious Metals Corporation is the world’s largest silver streaming company, with fourteen silver purchase agreements, it has increased its share of gold production with new purchase agreements.

Chart courtesy of www.StockCharts.com

Potential risks may hurt the company’s free cash flow and dividend payments, BoA wrote. Specific concerns include possible increases in inflation that boost the company’s costs and hamper its investment plans.

Delta Variant of COVID-19 Adds Risk for Five Gold Stocks to Buy

Rising cases and deaths from the highly transmissible Delta variant of COVID-19 are leading to heightened warnings from public health experts. The Centers for Disease Control and Prevention (CDC) is blaming the variant for worsening conditions, just months after requirements to wear masks indoors and adopt other restrictions were lifted in many urban areas. Many cities and states have reimposed precautions recently.

The variant’s danger seems to be spurring a growing number of people to become vaccinated from COVID-19. As of Sept. 7. 207,589,611 people, or 62.5% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated total 176,659,496 people, or 53.2%, of the U.S. population, according to the CDC.

COVID-19 cases worldwide, as of Sept. 7, totaled 221,873,412 and led to 4,585,547 deaths, according to Johns Hopkins University. U.S. COVID-19 cases thus far have reached 40,279,567 and caused 650,511 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The five gold stocks to buy amid rising inflation have the potential to put a shine on the portfolios of investors who enter and exit these volatile equities at the right times.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of  StockInvestor.com and DividendInvestor.com,  a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for special pricing!

 

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