Gold prices sank to a two-year low on Friday, partly due to fresh inflation data which indicated that the rate of increase in consumer prices for August had surpassed indications. However, Goldman Sachs GS said gold stocks were in a “sweet spot” on the very same day, stressing that several factors were still working in favor of the yellow metal.
Prices of gold rebounded on Monday as the dollar weakened. On Tuesday, gold remained mostly unchanged as investors awaited the outcome of crucial central bank meetings. Meanwhile, leading gold investor Robert McEwen proclaimed that gold prices could surge substantially by this year end. Adding gold stocks to your portfolio looks like a profitable option at this point.
Goldman Sachs Sees Upside for Gold Stocks
Prices of gold declined by 1.5% on Friday and suffered their first weekly loss. However, Goldman Sachs said that gold stocks were optimally priced. Analysts at the financial major went on to say that they saw substantial upside to these stocks despite the rally they have enjoyed this year.
Friday’s decline was mostly attributable to rate hike concerns that sparked off strong inflation data. However, Goldman Sachs believes that the decline was excessive in nature. Additionally, a rate hike may lead to a fall in prices, but such a decline would only be brief in nature.
Another drawback of gold stocks has been their insignificant dividend yields. Goldman Sachs said that these companies have undergone significant restructuring to bolster their balance sheets, shut down mines making losses and reducing overall costs. Their benefit financial position would now force them to raise their cash payouts.
McEwen Predicts Spike in Prices
Meanwhile, renowned gold bull Robert McEwen has predicted that prices could skyrocket, increasing by 44% by the end of 2016. Fears about the economy are likely to spark off a flight toward the natural hedge. Also, low interest rates across the world are likely to heighten investor anxiety.
As a result, the founder of McEwen Mining Inc. MUX and Goldcorp Inc. GG believes prices are likely to trade between $1,700 to 1,900 an ounce by the end of the year. McEwen also believes that there are factors which could work in gold’s favor. These catalysts range from jitters surrounding the U.S. Presidential election and the instability being suffered by banks. Additionally, he believes that the number of equity market investors have increased manifold. This has created multiple triggers for a panic situation which could increase the popularity of the yellow metal.
Skeptics believe that gold prices are unlikely to get anywhere near the range being predicted by McEwen. However, several factors are working in favor of gold. For instance, the Fed is unlikely to change interest rates during September’s meeting, continuing to foster an environment of low interest rates.
Picking gold stocks looks like a smart choice at this time. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Newmont Mining Corporation NEM is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand and Ghana.
Newmont Mining has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 91.3% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 20.35, lower than the industry average of 23.54.
New Gold, Inc. NGD is involved in acquiring, exploring, developing and operating mineral properties.
New Gold Inc has a Zacks Rank #1. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 89.1% over the last 30 days.
Eldorado Gold Corporation EGO is engaged in exploring, developing and mining gold reserves in Brazil, Greece, China, Turkey and Romania.
Eldorado Gold has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 44% over the last 30 days. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AngloGold Ashanti Ltd. AU is a company involved in exploring for and mining gold.
AngloGold has a Zacks Rank #2. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 19.5% over the last 30 days.
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