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RBC’s Gold Stock Picks for Asian Demand Growth

Trey Thoelcke

The past year has been absolutely brutal for investors who want to own gold. After a long rise that coincided with record low interest rates in the United States and abroad, the precious metal peaked in September of 2011, and has been on a decline ever since. In a new report, the mining and materials analysts at RBC point out that jewelry and physical gold have historically been the major drivers of gold prices, and they made up 81% of overall demand last year. They also believe that the current lower gold prices are driving Chinese and Indian demand. If that is the case, then investors may want to look now at the top gold stocks to buy.

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Here are some of the top gold stocks rated Outperform at RBC.

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Barrick Gold Corp. (ABX) is top name rated Outperform at RBC. Between asset sales and new equity, the company has raised nearly $4 billion in liquidity. Coupled with a lower dividend payout of $235 million and reduced capital expenditures, Barrick should generate about $1.2 billion in free-free cash flow. That is a number investors can be excited about. The stock pays investors a 1.1% dividend. The RBC price target for the stock is $28. The Thomson/First Call price target is $20.58. Barrick closed Monday at $18.83 a share.

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Goldcorp Inc. (GG) is another name rated Outperform that ranks high at RBC. The company operates as a gold producer involved in the exploration, development and acquisition of metal properties in Canada, the United States, Mexico and Central and South America. Over the past year, Goldcorp has been altering its mine plans, cutting spending and disposing assets in order to reduce costs and focus on the most profitable production. Now those efforts have begun paying off. Investors are paid a 2.5% dividend. RBC has a $37 price target, and the consensus target for the stock is $29.37. Goldcorp closed Monday at $24.30.

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Kinross Gold Corp. (KGC) is a top small cap name for investors looking for gold exposure and the ability to buy more shares. The company plans to severely chop capital spending by as much as $555 million this year. With problematic cash flow issues, this makes good sense. Kinross also may be a nice acquisition for a company looking to increase reserves. The RBC price target is a whopping $7, and the consensus figure is at $5.75. Kinross closed Monday at $4.14. A move to the RBC level would be a gigantic 67% gain.

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Yamana Gold Inc. (AUY) rounds out the top five names to buy at RBC. The company has been known to use extremely conservative assumptions in declaring its reserves, and as a result, it downgraded very few ounces last year. In fact, Yamana's reserves were essentially flat year-over-year. Furthermore, the company's resources -- a category of in-ground gold that is less restrictive -- grew meaningfully year-over-year. Investors are paid a 1.8% dividend. RBC has a big $13 price target and the consensus target is $11.4. Yamana closed Monday at $8.57. A move to the target would represent a 50% gain for investors.

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Chinese jewelry demand has nearly doubled since 2009, according to the RBC team. While the spot price of gold may take years to recover from its lows, the trend off the bottom looks positive for traders or those looking to hedge their portfolios. Always remember that it makes sense for precious metals to have a smaller overall portfolio weighting to other asset classes being held.

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