Precious metals are traditionally viewed as safe havens, typically showing strength during times of market turmoil and geopolitical uncertainty. Historically, they are also viewed as inflation hedges and preferred assets to protect against rising rates. Here, 10 resource specialists and contributors to MoneyShow.com highlight their favorite stocks and ETFs for investors seeking exposure to gold and silver.
The commodity bull market is being fueled by rising inflation with no end in sight. The Russian war has exacerbated the move in inflation with more uncertainty, and a run towards tangible assets and away from financial assets. This bull market in commodities was already under way and it’s poised to rise for several years to come.
With gold rising higher than silver, and gold shares rising more than gold, and seniors stronger than juniors, it’s telling us gold is “king” for now. It’s the ultimate safe haven and it’s being confirmed by investors running to safety. Plus, with senior miners strong than juniors, it’s reflecting value over risk. The big picture is still wide open for a “super rise” within an ongoing bull market.
Overall, our recommended gold shares are doing great. The best ones that recently reached new highs above their June 2021 highs are Royal Gold (RGLD), Newmont (NEM), Yamana Gold (AUY) and Franco Nevada (FNV).
For now, gold is stronger than silver and gold could continue rising more than silver in the upcoming months. But looking out to the longer term, silver is poised to be the better performer. Silver’s time is coming. Two of our recommended holdings are silver-related — Hecla Mining (HL) and Pan American Silver (PAAS). Silver is now making its way toward the $30 level. Once broken, it’ll be off and running.
Get Ready For The Next Big Move In Precious Metals: Join Mary Anne and Pamela Aden at The Money, Metals, & Mining Virtual Expo. April 5-7, 2022!
Precious metals have outshined equities so far this year, and when gold soars, the shares of companies that mine the metal tend to significantly outperform the bullion in percentage terms. Among those that have lately commanded attention is Agnico Eagle Mines (AEM), a senior Canadian gold miner.
The company has a pipeline of high-quality exploration and development projects in the U.S., Canada (including the just-closed acquisition of Kirkland Lake), Columbia and Mexico, and whose policy of no-forward gold sales gives it full exposure to current gold prices, which today is a great place to be.
Agnico recently reported several record results for full-year 2021: The company posted solid annual gold production of around 2.09 million ounces with all-in sustaining costs of $1,038 per ounce (well under the current gold price of around $2,000. Impressively, Q4 was also Agnico’s fifth consecutive quarter of over half a million ounces in gold production.
The strong results prompted Agnico to hike its dividend 14% (2.6% annual yield) and announce a $500 million share buyback program. Looking ahead, analysts see the top line growing 41% in Q1, followed by three more quarters of 60-ish percent growth (mostly due to the Kirkland acquisition), but of course the wild card here is gold prices, as upside will fall right to Agnico’s bottom line.
Take your pick: inflation at a 40-year high, Russia/Ukraine tensions or the start of a new Fed tightening cycle. Each is a good reason by itself to own gold, but collectively they make a very compelling argument.
U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) is a unique way to invest in gold. The exchange-traded fund is set up as a royalty trust, which is a special type of company.
GOAU provides a one-time payment to gold mining companies in exchange for an agreed upon percentage of the gold it produces. Best of all, GOAU is contractually entitled to a set number of ounces at a predetermined, always below market price of gold.
The only risk that GOAU takes is if the price of gold falls below its discounted purchase prices. And with gold still hovering around $1,946 an ounce, it spells nothing but big paydays for GOAU.
Royalty and streaming companies are the low-risk way to invest in the gold mining sector. But you don’t give up much upside by doing this. Essentially, a royalty company will make an upfront payment to a mining company in exchange for a small percentage of the gold that is mined. A stream is similar, except the company pays a modest per-ounce cost when received in addition to an upfront payment.
Franco-Nevada (FNV) reported a strong fourth quarter on the back of higher production at Cobre Panama, its largest stream, and record oil and gas revenue. Overall, for the year, there was record revenue of $1.3 billion, up 27%, coming in at the high end of its guidance.
Franco ended the quarter with $539 million in cash, no debt, and $1.1 billion available on its credit facilities. It increased its dividend again, by nearly 7%, for the 15th consecutive dividend increase.
Asset diversification separates Franco from other gold royalty companies. Franco has a lower percentage of gold and silver than other large royalty and streaming companies, which diversification it now calls a distinguishing advantage. It is probably a feature that makes the company attractive to generalist investors.
The company is also well diversified in terms of its assets, operators and geography. Franco sees the pipeline quite strong across a variety of financing needs. Franco-Nevada continues to be one of our core investments.
Royalty and streaming companies have far lower exposure to operating cost inflation than miners and less exposure to potentially increasing taxes. So, they remain attractive investments for the current environment.
Wheaton Precious Metals (WPM) reported record revenue and earnings for the fourth quarter, though it missed analyst forecasts by a small amount. For the year, revenue was $1.2 billion. Royalties on gold and silver are currently 94% of revenues.
The Salobo expansion (Salobo III), which is part of the project that represents Wheaton’s largest single asset, was delayed because of landslide; it had been 85% complete at year end. Vale is conducting a thorough review of the project, which should be complete sometime in the second quarter. At present, the expansion is considered still on track for a year-end start up.
Wheaton has a solid balance sheet, with available liquidity now up to $2.2 billion. With cash, a strong credit facility and anticipate strong cash flows in coming years, CEO Randy Smallwood said he did not think the company would ever have to issue another share.
Wheaton focuses on assets with low costs, with 85% of its assets in the lower half of the cost curve, and reserves with over 30 years of life. Wheaton is forecasting an average of 20% growth over the next 10 years.
Wheaton (whose current yield is 1.3%) has been included in the S&P Canadian Dividend Aristocrats Index. The stock is a core holding for us; but given the 25% plus run up since the end of January, we are holding and looking for a pullback to buy.
The Fed can’t stop inflation. It’s a huge dilemma, and investors are catching on. What can you do about it? Well, silver crushes inflation. In the 1970s, we experienced an entire decade of high and rising inflation. Yet silver generated a gain of 3,700%. That’s not a typo. And silver stocks did considerably better than that.
I think we’re in for an inflationary shock, and as investors come to realize this, they’re going flock towards silver. And that will help push this sector much, much higher. Technically, silver has been quite strong and the 50-day moving average looks about ready to cross above the 200-day moving average, forming a bullish “golden cross”. Silver’s upside targets are $26.50, $27, then $28.
Silver stocks, while constructive, have more work to do. The Global X Silver Miners ETF (SIL) has clear resistance at the $38 level. Once it crosses $38, there’s a pretty clear path to $41.
And looking at the PureFunds ISE Junior Silver ETF (SILJ) — which is actually mid-tier silver companies — we see a lot of recent strength. The $14.50 area appears to be the main overhead resistance level. After that, $15.50, then $17.50 look like the next upside targets.
Overall, silver’s technical picture is looking quite strong. And with the rate hikes now officially started, I think we could see silver continue to climb. On a seasonal basis, the next couple of months suggest more strength ahead.
Gold is consolidating the recent pull back, above the January uptrend, which coincidently is gold’s key break-out level in February at the $1900-$1925 level. Our leading indicator continues to show momentum building in favor of gold. Gold miners are holding up strong. They’ve been outperforming most asset classes recently and are looking ripe for more upside.
Novagold (NG) continues to march upward, within a clear up-channel since the January lows, recently testing the $8 handle, which is also near the October 2021 highs. A break above this level and it’s off to the races! A rise to the June highs near $10 would then be likely. The leading indicator is at a high area showing momentum favoring NG. However, it’s resisting at a high area suggesting some consolidation short-term is possible.
Harmony Gold Mining (HMY) is forming a bullish flag pattern with resistance at $5.50. This means, if HMY breaks above $5.50 it could rise to the $7 target level. The leading indicator is pulling back and looking for a bottom. It’s telling us short-term weakness may be over and a renewed up-move is now likely. On the downside, HMY’s bullish support is at the January uptrend at $4.30. A break below this level could push it back down further, to possibly the September uptrend near $3.50.
The last time gold began a long-term bull market, in 1999-2000, the metal rose from $250 an oz to $850 an oz., or over three times in less than a decade. I’m not suggesting gold will match that performance, but it’s reasonable to assume that having taken out its previous all-time high, gold could run to $2,500 per oz., a 25% move.
Equinox Gold (EQX) has projects in Canada, the US, Mexico, and Brazil, with seven operating gold mines and five growth projects. Mining entrepreneur Ross Beatty owns 8% of the company. Equinox went public in November 2018 at $4 per share.
The company has proven and probable reserves of 16 million oz. and measured and indicated reserves of 30 million oz. It expects to have production of 670,000 oz. in 2022.
Its growth projects include the Santa Luz mine in Mexico, where it is spending $103 million in retrofitting a previously producing mine which will come on stream this quarter. It is estimated Santa Luz will produce 110,500 oz. annually for the first five years of operation.
Also, Equinox officially broke ground in October 2021 on the Greenstone project, one of the largest mines in Canada. It is anticipated the two-year construction period and six months commissioning should permit the first gold pour in the first half of 2024.
With a projected 13% increase in production from 593,000 oz. in 2021 to 670,000 oz. this year, Equinox is well positioned to enjoy strong growth in revenues and cash flow, quite apart from the rise in the gold price.
Equinox is a well-capitalized gold miner with seven operating mines in politically stable jurisdictions. Projected growth in production over the next couple of years is to 1 million oz. per year.
The stock sells at 22 times 2022 forecast operating earnings. It is in the bottom third of junior producers in terms of price/ net asset value (0.63 times). It expects the second highest production growth from 2021-24 and has second highest reserves amongst the group. I rate the stock a buy
Barrick Gold (GOLD), based in Toronto, is one of the world’s largest and highest-quality gold mining companies. About 50% of its production comes from North America, with the balance from Africa/Middle East (32%) and Latin America/Asia Pacific (18%).
Barrick will continue to improve its operating performance (led by its new and highly capable CEO), generate strong free cash flow at current gold prices, and return much of that free cash flow to investors while making minor but sensible acquisitions.
Barrick reached an agreement with the governments of Pakistan and its Belochistan province to restart the Reko Diq copper and gold mine. Production was suspended in 2011. Barrick will own 50% of the new project. While the mine is small, the agreement illustrates Barrick CEO Mark Bristow’s ability to effectively work with local governments.
Also, Barrick shares offer optionality — if the unusual economic and fiscal conditions drive up the price of gold, Barrick’s shares will rise with it. Given their attractive valuation, the shares don’t need this second (optionality) point to work — it offers extra upside. Barrick’s balance sheet has nearly zero debt net of cash.
There has been a big turnaround in gold, as I expected. Gold soared in early 2020 primarily thanks to the Fed’s monetary stimulus but peaked in August 2020. Gold was rising in 2022 as inflation reached levels not seen in 40 years. The invasion of Ukraine caused more gold buying.
Exchange-traded funds are the least expensive, most liquid way to invest in gold. I recommend iShares Gold Trust (IAU) because it usually has the lowest expense ratio and isn’t used as much by hedge funds and other short-term traders. IAU is up 7.44% for the year to date and 15.65% over 12 months.
iShares MSCI Global Metals and Mining Producers (PICK), and ETF made up of mining companies, is also doing well in this difficult time. The fund sank in mid-2021 and seemed to be a bargain. The markets didn’t appreciate how much miners were likely to benefit from the continuation of global growth.
The fund tracks an index of global mining; it recently held 214 stocks, but 50% of the fund was in the 10 largest positions. PICK is up16.85% so far in 2022 and 26.75% in the last 12 months. It has a yield of 5.30%.