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Softness in Gold Just a Blip, Buy These 4 Stocks Instead

Nitish Marwah

Gold prices rose to a 10-month high on Feb 19 on the back of concerns related to global economic slowdown and weakness in U.S. dollar. However, gold prices have wobbled since then, as has the U.S. dollar. As it stands, gold is priced at $1,317 an ounce after an abrupt ending to President Trump and North Korea’s Kim Jong-un summit in Vietnam sparked a safe-haven buying spree.

Though volatile, investors speculate that the yellow metal will witness a decline in value in the near term. However, such weakness, if any, is only momentary as global economic fluctuations and inflated equity valuations are likely to boost gains for gold in the long run. It is therefore advisable to invest in gold at this point.

Global Outlook for Gold in 2019 Remains Positive

The impacts of global economic and political dynamics over the past two years are largely expected to be felt in 2019. There has been an increase in the adoption of protectionist trade and economic policies by major economies across the globe. Needless to say, such practices contribute to an increase in volatility in the markets.

On Jan 21, the International Monetary Fund (IMF) reduced its global economic growth forecasts 2019 to 3.5% from 3.7% in October. Likewise, global growth projection for 2020 was reduced to 3.6% from 3.7% in October, marking the second reduction in the last three months.

On Feb 6, the European Commission lowered its 2019 growth projection for the 19-member Eurozone from 1.9% in November to 1.3%. Moreover, both Germany and Italy, the two largest economies of the Eurozone, are likely to face several headwinds in 2019.

Further, equity valuations continue to remain high across the world. Such developments point toward an increased likelihood of a world-wide recession. Therefore, there will be a surge in demand for gold in 2019 as a hedge against global financial risks.

Fed’s Slow Rate Hike Approach to Benefit Gold

Experts are of the view that the yellow metal is likely to face severe headwinds from higher interest rates and strength in the greenback. However, the Fed has indicated a more controlled approach toward hiking interest rates this year, which means that gold will surge in the long run. 

During an appearance at the Economic Club of Washington, D.C. in January, Powell confirmed that the central bank won’t be hasty in hiking rates this year. Moreover, minutes from the Federal Open Market Committee’s meeting held in January were released on Wednesday.

Minutes of the meeting showed that officials from the Fed remained divided on the need to hike interest rates. A group of officials argued that a hike in interest rates would only be necessary if inflation levels turned out to be higher than the initial baseline forecast.

Market watchers widely expect that the Fed would hold interest steady in its next meeting in March. Per the CME FedWatch Tool, the probability that the Fed will keep its rates unchanged in the range of 2.25%-2.5% at its upcoming meeting stands at 97.4%.

4 Best Choices

To make an estimate about gold’s movement in the near future is dependent heavily on the prevalence of risk, strength/weakness in U.S. dollar as well as structural economic reforms. It is not difficult to gauge that in the current scenario all these factors indicate that gold is going to be in huge demand this year.

In this context, we have selected four gold stocks that are expected to gain. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Pershing Gold Corporation PGLC is a developer and miner of gold and precious metals.

The company is based out of Lakewood, CO and carries a Zacks Rank #2. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 4.2% over the past 90 days.

Kirkland Lake Gold Ltd. KL is involved in the exploration and development of gold properties.

The company is based out of Toronto and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 8.64%. The Zacks Consensus Estimate for the current year has improved 12.1% over the past 60 days.

Kinross Gold Corporation KGC is involved in the acquisition, exploration, extraction and processing of gold-containing ore.

The company is based out of Toronto and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 16.97%. The Zacks Consensus Estimate for the current year has improved 8.3% over the past 90 days.

Newmont Mining Corporation NEM is an acquirer, developer and explorer of gold and other precious metals.

The company is based out of Greenwood Village, CO and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 6.03%. The Zacks Consensus Estimate for the current year has improved 3.4% over the past 60 days.

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Pershing Gold Corporation (PGLC) : Free Stock Analysis Report
 
Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Kinross Gold Corporation (KGC) : Free Stock Analysis Report
 
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