One reason why investors have always been attracted to gold as an asset class is that it retains its value and can survive market fluctuations better than most other asset classes. Ironically, this mentality allows gold and related assets (like gold stocks) to perform well, especially when the broader market is suffering.
So if you are worried about inflation, gold stocks could be a practical way to gain exposure to this shiny commodity and hedge your portfolio (without forced asset-class diversification).
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One of the largest gold companies in the world
Barrick Gold (TSX:ABX)(NYSE:GOLD) is a safe gold investment, not just because of the stock’s performance but because of the company’s operational capacity and portfolio of assets. It has a decent portfolio of mines in 18 countries, six of which are Tier One gold mines. It has an extensive presence in Africa, as well as operations in South America and Saudi Arabia.
The stock offers a modest combination of dividends and cyclical growth. It has gone through two major growth phases since 2015 when it grew over 200% and about 190%, respectively. It also pays dividends, though the current yield is quite paltry at 1.66%. However, the stock is currently experiencing a bullish phase which may result in some capital appreciation that has the potential to balance out the yield.
An international gold producer
Another gold mining company with an international focus is B2Gold (TSX:BTO). It has three production stage mines in Mali, Namibia, and the Philippines, with at least five development and exploration projects under its belt. As a low-cost producer, it aims to be more profitable with the same amount of gold produced by a peer in relatively costly regions.
Its production capacity is quite substantial for a company its size. As a mid-cap company, it offers slightly more pronounced capital appreciation potential during the same sector-wide bullish phases. An example would be its two growth phases since 2015, which returned 380% and over 220%, respectively, roughly following Barrick’s growth phases. Its yield is significantly sweeter at 3.59%.
A gold royalties company
Franco-Nevada (TSX:FNV)(NYSE:FNV) is easily the gold standard when it comes to growth stocks, not just among gold stocks but in the material sector as a whole. It’s has been one of the most consistently growing in the last 15 years, and even though the pandemic market conditions disrupted the growth momentum, its long-term potential is still solid.
The company also offers more safety and stability compared to gold miners. As a royalty company that’s only financially tied to the operations and has minimal physical liability regarding the asset (if any), it keeps attracting investors during periods of both high and low inflation and in healthy and weak stock markets. This makes it stand apart from the rest of the gold stocks in Canada.
Foolish takeaway
The TSX is showing indications of an upcoming bearish phase. It might just be a two-, or three-week dip, or it may turn into a full-blown correction. That would give you another reason to buy and hold gold stocks in addition to using them simply as a hedge against inflation.
