3 Undeniable Reasons Why You Should Invest in Gold Stocks in 2020

Reduced federal fund rates and wise decision-making of mining companies make gold stocks like Newmont Goldcorp a worthy buy for this year.

We all remember a time when people considered buying gold bullion as the safest form of investment. Whether palladium, uranium, lithium, or copper, the shares of companies dealing in metals and rare earth minerals are generally soaring or at least staying strong.

Among all these metals and minerals, gold still holds the reins. Gold stocks could perform well this year for the following three reasons.

Interest rates are low

It has been a tradition that changing federal fund rates by the U.S. affects the gold price that eventually picks at stock prices of mining companies. Usually, this change in interest rates and gold prices are in inverse relation, i.e., lower interest rates resulting in the higher gold price.

Gold is a commodity that doesn’t provide any yield. So, when interest rates dip down, it also minimizes the opportunity cost of holding this precious metal. As a result, the market sees more gold transactions that always pans out well for miners and respective stocks.

Last year, the U.S. Federal Reserve cut the interest rates three times. As the end of the US-China trade war is not in near sight, the reduction in interest rates might continue this year and keep on providing gold and gold stocks a boost.

Gold provides a hedge against volatile markets

If we see the performance of last year, gold miners are putting a solid performance at the TSX and NYSE. If one analyzes the ongoing strategies of mining companies, it becomes evident that the success of gold stocks is not short-term. Let’s take the example of Newmont Goldcorp (TSX: NGT)(NYSE: NEM).

To begin with, the company has started reaping benefits of the revenue synergy that happened due to the merger of Newmont Mining and Goldcorp. It has led to the addition of high-quality assets to the company’s portfolio and is continuously improving its bottom line.

Newmont Goldcorp is also streamlining its balance sheet and keeping the top line in check by getting rid of underperforming assets. Its stock has witnessed a gradual and steady growth of over 20% since the merger. With the right decision-making, Newmont Goldcorp stock will keep on growing this year.

Barrick Gold is also in recovery mode. The second-largest gold mining company in the country was facing a significant debt crisis two years ago. However, things are turning in its favour thanks to better asset management and stable gold prices.

Other gold stocks such as Yamana Gold and Wesdome Gold Mines are also on the right track.

A suitable replacement for cannabis stocks

Many investors are done with the cannabis rush. It’s doubtful that cannabis stocks will see any drastic positive turnaround this year, however.

The lackluster performance of cannabis stocks can direct many investors to take a stake in gold, and the resultant growing demand means increased prices of gold stocks.

Summary

The low interest rates, recovering gold prices, and proper balance sheet management of mining companies make gold stocks a good investment for this year.

If you’re seeking a good hedge and high-yielding investment in 2020, then gold stocks can be the right choice.

Fool contributor Jason Hoang has no position in any of the stocks mentioned.

More on Dividend Stocks

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

Best Monthly Dividend Stocks on the TSX? My Top Picks for Today

Looking for monthly dividend income and an attractive growth profile? These two TSX stocks are my top picks today.

Read more »

oil pumps at sunset
Dividend Stocks

Canadian Natural Resources vs. Suncor: The Dividend Stock to Own Through 2026

Let’s compare Canadian Natural Resources and Suncor Energy across their financial performance, dividend track records, growth prospects, and valuations to…

Read more »

man studies at computer
Dividend Stocks

Here Are The 3 Canadian Stocks I’d Tell a New Investor to Buy ASAP

Discover strategies for investing in stocks that can help you thrive in a market filled with volatility and uncertainty.

Read more »

telecom towers concept for wireless technology
Dividend Stocks

BCE Stock Is Down 2% After Q3: Is the 5.8% Dividend Safe?

BCE stock slipped 2% after Q3 earnings. See whether the 5.8% dividend is safe, how free cash flow covers it,…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Too Busy to Invest? This Dividend Stock Deserves a Permanent Place In Your TFSA

This Canadian stock appears well-positioned to keep paying and growing its dividend and deliver solid capital gains in the long…

Read more »

monthly calendar with clock
Dividend Stocks

The TFSA Strategy I’d Use to Generate $600 in Monthly Tax-Free Income

A smarter TFSA approach is to prioritize sustainable total returns and diversification rather than chasing an arbitrary monthly income number.

Read more »

Concept of rent, search, purchase real estate, REIT
Dividend Stocks

How Much to Invest in Killam Apartment for $250 a Month in Dividends

Want $250 a month? Killam Apartment pays $0.06 a unit at $17.45. See how many units to buy, what Q3…

Read more »

resting in a hammock with eyes closed
Dividend Stocks

3 Top Canadian Dividend Stocks for $2,050 in Passive Income Each Year

With resilient business models, consistent dividend payouts, and clear growth prospects, these three dividend stocks are ideal for income-seeking investors.

Read more »