Like many TSX stocks, gold has had a huge run-up in price this year. The yellow metal has been gaining value rapidly over the last few years.
Already in 2019, the price of gold was on the rise. In total, the price rose by roughly 10% last year — a significant amount for gold. That rally continued early in 2020, then along came the coronavirus pandemic.
Initially, gold, like almost every other asset, sold off as investors rushed to raise cash. Then as governments dumped tonnes of cash into economies and the market started to recover, so too has gold.
Since the bottom in March, the price for the yellow metal has gained a whopping 30%. That’s the reason why gold stocks have been among some of the top performers on the TSX.
Why gold stocks have been hot
To understand gold stocks, we must first understand gold and why it appreciates in the first place.
The coronavirus pandemic caused massive economic issues. One of the only ways for governments to deal with this was to print large sums of money.
The problem is, printing tonnes of cash tends to devalue the money, which is why you see gold and other assets explode in dollar value since the stimulus began.
With interest rates near zero, and inflation likely to push real interest rates negative, this economic environment is highly accommodating for gold.
So, on top of all the price gains we have seen, there is still a huge runway for growth in the precious metal and, more importantly, for the stocks going forward.
When considering investing in gold, often, your best bet will be to buy the producers. This is because gold stocks generally offer better exposure to rising gold prices. This is due to the leverage that companies have, allowing you to capitalize on a small increase in the price of gold through a major increase in the value of gold producer shares.
Here is one of the top TSX gold stocks to consider.
Gold stocks to buy
While almost every TSX gold stock has had a huge year up until this point, I still believe there’s an enormous runway for growth. One of the stocks with the most upside, in my opinion, is B2Gold (TSX:BTO)(NYSE:BTG).
B2Gold continues to be a great long-term growth business. So far this year, since the bottom in March, B2Gold shares have gained 120% vs. gold, which is up about 30%. However, it’s lagged recently due to heightened political risks in Mali, the site of its Fekola mine. Thankfully, since operations at the mine haven’t been affected yet, it’s not having too much of an impact.
Furthermore, due to B2Gold’s impressive diversification, if there were an impact, it would likely only be minor. Nevertheless, the issues have still muted some of B2Gold’s share price potential.
As this is likely to get sorted out soon, though, the stock could see a huge boost when sentiment returns.
The main reason to buy B2Gold today, besides the recent underperformance giving it a huge runway, is its low-cost production. It’s most recent earnings once again looked strong. That’s also why it’s been such a top performer the last few years, especially as the price of gold has increased and its margins have grown considerably.
The company is so robust and so profitable it already doubled the dividend twice this year. That dividend currently yields nearly 2.5%. That’s a massive dividend for a gold stock, showing just how impressive its free cash flow has been.
B2Gold is an extremely attractive gold stock, going through temporary headwinds that have created a significant opportunity for investors.
The TSX is full of high-quality gold stocks, though, so even if you want to avoid B2Gold, there are plenty of other companies with attractive prospects to choose from.
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 Daniel Da Costa owns shares of B2GOLD CORP.