Betting on Risk? This Is Still the Best Strategy

Betting on increased risk in the markets? Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) and this strongly correlated ETF are strong choices.

Road sign warning of a risk ahead

Image source: Getty Images.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Stocks for Beginners

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

3 TFSA Hacks That Could Make You a Millionaire

Do you want a $1 million without worrying about the tax bill? These TFSA hacks could help you become a…

Read more »

Early retirement handwritten in a note
Stocks for Beginners

These 2 TSX Growth Stocks Could Help You Retire Early

Buying these two TSX growth stocks can help you retire early by multiplying hard-earned savings in the long run.

Read more »

Technology
Stocks for Beginners

The Best Stocks to Invest $1,000 in Right Now

Want a great starter portfolio? Here’s a list of the best stocks to invest $1,000 in right now for long-term…

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »