The global economy is set to remain coronavirus-stricken in the first half of this year. Although, stock markets of most of the countries have recovered a large part of ground in April-May that they lost in February-March, the global economy has a long road to go to reach to the pre-pandemic stage. The U.S. economy is not an exception.
Meanwhile, economic devastations and the resulting market turmoil have gone well with precious metals, especially gold. The price of the yellow metal – an important safe-haven investment opportunity – has rallied 14.3% so far this year.
Last week, gold gained 3.2% as Wall Street routed on concerns of a second surge of coronavirus. The momentum of gold is likely to continue this year due to reasons mentioned below.
Concern Over Resurgence of Coronavirus Cases
Investors remain highly concerned about the second wave of coronavirus cases which could significantly delay the just-started reopening process of the economy. The seven-day average of new cases over the past two weeks is still rising in more than 20 states. States like Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma and South Carolina reported record numbers of new cases in the past three days.
Outside the United States major Asian countries such as South Korea, Japan, China, India and Singapore reported a surge in coronavirus infections as the respective governments tried to reopen economy.
Gloomy Global Economic Outlook
The major agencies, namely, the World Bank, the IMF and the OECD forecast that the global economy will shrink 5.2%, 3% and 6%, respectively, in 2020, due to coronavirus-induced devastations. IMF said it may revise its 2020 global growth forecast further down in next 1 to 2 months.
Moreover, on Jun 8, the National Bureau of Economic Research stated that the U.S. economy has fallen in recession since mid-February, ending the historically longest 128 months of expansion.
Meanwhile, on Jun 9, after its two-day FOMC meeting, the Fed projected the U.S. GDP will decline by 6.5% in 2020 before recovering at 5% in 2021. Unemployment rate will stay at 9.3% by this year end, much higher than 3.5% recorded just before the outbreak of the deadly virus.
Accommodative Monetary Policies
Almost all central banks are pursuing easy monetary policies in order to inject more liquidity into the system. Fed has reduced the benchmark interest rate to zero and has desired to maintain 0% interest rate and asset buyback programs till 2022.
The ECB and the Bank of Japan are maintaining a negative interest rate policy for a long time. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other currencies.
Our Top Picks
Buying pressure on gold is likely to remain robust with investors focusing on precious metals as a store of wealth and hedge against market turmoil at least for the next few months. The global economy is still not out of danger although the pace at which coronavirus is spreading seems to be stabilizing.
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 three months.
Agnico Eagle Mines Ltd. AEM is engaged in the exploration, development and production of mineral properties in Canada, Mexico and Finland. It primarily produces and sells gold deposit, as well as explores for silver, zinc, and copper deposits. The Zacks Rank #1 company has an expected earnings growth rate of 53.6% for the current year.
AngloGold Ashanti Ltd. AU is an independent, global gold mining company with mines and exploration projects across Africa, Americas and Australasia. It is the third-biggest gold mining company globally in terms of production. The Zacks Rank #1 company has expected earnings growth of 112.1% for the current year.
Alamos Gold Inc. AGI is engaged in the acquisition, exploration, development and extraction of gold deposits in North America. It also explores for silver and precious metals. The Zacks #2 company has an expected earnings growth of 65% for the current year.
B2Gold Corp. BTG explores and develops mineral properties for gold deposits in Nicaragua, the Philippines, Mali, Colombia, Burkina Faso and Namibia. The Zacks Rank #2 company has expected earnings growth of 221.4% for the current year.
Barrick Gold Corp. GOLD is engaged in exploration, mine development, production, and sale of gold and copper properties. It has ownership interests in producing gold mines located in North America, South America and Africa. The Zacks Rank #2 company has an expected earnings growth of 54.9% for the current year.
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Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
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Alamos Gold Inc. (AGI) : Free Stock Analysis Report
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