Gold miner stocks have slipped modestly in recent weeks, thanks to the sudden pullback across the broader basket of precious metals, most notably silver and gold. Though millennials have lost their love for precious metals in favour of new-age alternative assets like Bitcoin (CRYPTO: BTC), I think there’s a strong case for owning both. Indeed, neither Bitcoin nor gold should comprise more than 5% of your portfolio. With growing concern about Russia’s invasion of Ukraine and the ongoing COVID crisis, gold prices could stay elevated for some time, at least above the US$2,000-per-ounce mark.
In such a scenario, the broader basket of Canadian gold miners will remain profoundly profitable. And it’s investors that will stand to benefit from rich dividend increases. On the flip side, if gold sinks considerably (unlikely given all the risk in the market today), such dividends could be subject to a cut. Still, your average stock would likely fare quite well, given it would take a lot of risks to come off the table for such a gold plunge.
The case for owning gold over (or alongside) Bitcoin
Although gold is cyclical, I find the asset to be an invaluable addition to the portfolio of any prudent Canadian who aims to lower their correlation. In times like these, gold shines. Moving ahead, I think there’s one intriguing catalyst that could send gold prices back above its all-time high: a plunge in the crypto markets. Cryptocurrencies like Bitcoin have become a mainstay in the portfolios of younger investors. Despite its rapid uptake and acceptance, I remain a skeptic on crypto’s future.
Bitcoin has been known to be cyclical. It can soar or crash at the drop of a hat. Dr. Michael Burry doesn’t seem to be a raging bull on Bitcoin’s future, opening up the door to a potential cryptocurrency crash at some point down the road. I wouldn’t doubt its occurrence. Bitcoin has crashed before, and it will likely crash again. That’s why it’s important to only invest what you can afford to lose in the wild world of crypto.
A top gold miner to diversify your portfolio further
Once crypto markets plunge, I expect rapid inflows back into safe havens like gold. Indeed, gold may not be the perfect substitute to cryptos, but they are viewed as such by some. In any case, Agnico Eagle Mines (TSX: AEM)(NYSE: AEM) stands out as a far better bet than Bitcoin. It’s a well-run miner with one of the most bountiful dividends out there. After a mild slip, shares of AEM yield 2.9%. That’s incredibly generous, but is it sustainable?
Though Agnico will be busy spending to bring out the most in its Kirkland Lake assets, I view the dividend as sustainable at these levels. Further, given tailwinds that could support gold’s ascent higher (think a plunge in Bitcoin and a further escalation of geopolitical turmoil), I’d argue that Agnico Eagle is a prudent hedge against further market chaos.
Despite the modest multiple and colossal yield, I wouldn’t bet more than 5% on the name, simply because it’s tough to project the price of any commodity. Indeed, gold miner stocks are very choppy. But this volatility is worth stomaching for the diversification benefits.
