I strongly believe this is the year for gold. I know most investors are sick of hearing that, and I don’t blame them. This is the third year in a row that gold has closed lower, in spite of several experts calling a rebound in the once-loved commodity.
But hear me out. While I can’t (and don’t even try to) predict where gold prices will go by the end of the year, what I can say is that the metal is having a great start to 2015.
Over the past month, the S&P/TSX Gold sector has jumped an impressive 25.2%. That’s after the last six months of 2014 saw the S&P/TSX Gold sub-industry return -28.6%. On June 30, 2014, gold was at US$1,325.75/oz and within five months it lost another 13% and ended the year at US$1,199.25/oz — lower for the third straight year.
However, one month into the new year, gold is performing incredibly well. It has almost wiped out all loses from 2014 and the price of gold now sits proudly at US$1,286/oz. Of course, it still has a long way to go, compared to its all-time high, but this is a start.
I’m not entirely sure what is triggering the rally. There are several factors that can be attributed to the run including the escalating war against terror (with ISIS). Moreover, gold miners are finding it increasingly hard to locate gold deposits, and so, demand-supply fundamentals could be working in favour of gold prices too.
In December 2014, I said gold was a sector to watch for 2015. Besides being bullish on gold, I’m also positive on one gold company in particular: Goldcorp Inc. (TSX:G)(NYSE:GG). I believe Goldcorp will do well this year and if you are looking to enter the gold sector, this is one company worth considering.
Goldcorp has been a market darling in the North American gold sector for ages. It is a quality company that is very well run, has a strong balance sheet, and has high quality assets. The company recently purchased Probe Mines Ltd. (TSXV:PRB) in an all-stock deal worth $526 million. This deal makes a lot of sense for Goldcorp, in spite of it looking expensive on the surface; the biggest being the synergies due to the proximity of the two mines. In fact, Goldcorp Chairman Ian Telfer recently said in a Globe and Mail interview that the only way mining companies can grow and survive is through acquisitions.
Goldcorp has been performing exceptionally well too, compared to the rest of its peers. It hit record gold output in the last quarter of 2014 and expects to grow by 20% this year as several of its new projects begin production.
However, the stock currently hovers around its 52-week high at $30.69, which is a tad expensive. But Goldcorp has earned this premium and its past record proves it is worth its price tag.
