Will Gold Stocks Surge as the U.S. Dollar Weakens?

With the 25-basis-point expected hike in interest rates at the upcoming Fed meeting in Wednesday being priced in already, the U.S. dollar may be setting up for weakness. And with inflation and wage growth remaining sluggish, next year may not see the interest rate hikes that the market is expecting, which would result in a lower dollar.

As a result, gold prices should strengthen, as the inverse relationship between the U.S. dollar and interest rates has been a historically firm one.

In addition, and in what should be a boost to gold and gold stocks, the attempted terrorist incident in New York this weekend should increase demand for a “safe haven.”

Here are two of the best picks for investing in gold stocks.

With the company reporting third-quarter results that were well above expectations (EPS of $0.29 versus expectations of $0.16), and guidance being increased again, Agnico Eagle Mines Ltd. (TSX: AEM)(NYSE: AEM) makes a great addition to investors’ portfolios.

The stock has a dividend yield of 1%, but the key here is that the dividend was increased by 10%, and the company continues to perform better than its guidance.

Gold production in the quarter was 454 ounces, 9.1% higher than the same quarter last year. And, just as important, the company achieved an all-in sustaining cost per ounce (AISC) of $789 — also better than expected.

And going forward, the company increased its gold production target and decreased its AISC to $820-870. This compares to prior guidance of $830-880 and initial 2017 guidance of $850-900.

For the investor who is perhaps looking for more risk for the potential of a higher return, attractively valued OceanaGold Corporation (TSX: OGC) is a good option for exposure to gold.

OceanaGold is delivering stellar results on the production side of things as well as on the cost side.

In the latest quarter, production increased 9%, and the company achieved an AISC of $748, which was up from last quarter but still compares very favourably to industry bellwether Agnico.

And the company is still targeting an AISC of $600-650 per ounce for the full year.

The company’s new mine in South Carolina, the Haile mine, continues to ramp up production and produced 31,374 ounces in the third quarter, which represents an almost 100% increase from the prior quarter. The future production profile will be increasingly clear as the year progresses, but it will continue to ramp up.

The issue with OceanaGold, though, is the fact that there is heightened geopolitical risk in the Philippines, which is where its Didipio mine is located. This is mitigated by the company’s operations in New Zealand and the U.S., but it represents 24% of the company’s production in the first quarter of 2017, so it is still significant. However, as the Haile mine ramps up, the risk will lessen.