Gold has been having a good year, as one market-shaking stressor after another has sent investors running for safety. And it’s not over yet, with a confluence of stressors lining up to take aim at the markets, from North American political earthquakes to ratcheting geopolitical tensions.
But should new investors be buying shares in big-name metals and mining stocks or pouring funds into ETFs and spreading their own risk? Today, we’ll look at a couple of strong plays for the former asset type as well as an ETF that correlates strongly with the market for the precious yellow metal.
Big-name gold miners could replace small-cap momentum
The TSX has entered the age of the mega-miners, with mega-miners such as Barrick Gold starting to take the place of smaller operators when it comes to momentum investing. Guyana Goldfields, for instance, usually a strong play for upside that attracts the attention of growth investors, is overall negative this week.
What makes Barrick such a strong play, though, is the combination of its sheer size, its productivity, the quality of its mines, and its solid growth outlook. Its fundamentals are attractive, and its value for money is still reasonable. However, that may not always be the case, as Barrick is definitely a recovering stock on its way to the top. In short, post-merger with Rangold, Barrick is an increasingly cost-efficient gold super-stock with a lustrous future.
ETFs are a strong play for new gold investors
How do you pick a good gold mining ETF? Look for strong market correlation. While this has proven so far to be notoriously difficult for the cannabis industry, for instance, with its wildly varied businesses and nebulous market marred by extreme turbulence and an established black market, it’s somewhat easier when it comes to something as relatively predictable as gold.
VanEck Vectors Gold Miners ETF is a strong choice in this regard, as it closely follows the price of gold. While this makes for increased risk when gold falls, it also means that investors reap the biggest gains when prices of the precious yellow stuff rally. That’s why this ETF in particular is a solid gold play for investors bearish on the global economy. VanEck is positive by +5% for the week, beating Barrick’s 3.5%.
Investors worried about a recession have a strong play in gold stocks and ETFs, and while proponents of one asset type may see their strategy as the best, the inevitable rise in popularity of gold will make for a fairly level playing field. While investment in miners themselves could provide the steepest upside, however, the ETF route reduces the risk of disruption — for instance, from economic and political unrest in some mine locations.
The bottom line
With rising gold prices set to continue trending upwards on increased risk, snapping up Barrick at its current valuation is a smart move. With several high-profile stressors coming to a head this month, such as an unruly Brexit and the political tension south of border, gold is likely to continue to trend higher, giving defensive investors a strong play for both safety and relatively assured capital appreciation.
