The rare yellow metal, gold, has always had a strange relationship with the broader economy. Gold’s value tends to rise when the economic situation gets worse and currencies lose their value. Rising costs and currency depreciation often result in a downturn for the stock market, as companies struggle under the pressure of inflationary environments.
However, not all companies trading on the stock market face losses due to inflationary environments. Some non-cyclical companies tend to weather the storm well and retain a relative degree of stability. Then there are companies that stand to benefit from rising gold prices.
Metals and mining stocks with significant business operations related to gold and silver thrive in inflationary market environments. Currency devaluation and higher gold prices serve as a tailwind for gold mining companies, allowing them to enjoy greater profit margins.
It comes as no surprise that the mining industry tends to outperform the broader market during such market trends.
Today, I will discuss two gold stocks that you can consider adding to your portfolio to shield it against inflation.
Kinross Gold
Kinross Gold (TSX:K)(NYSE:KGC) is a $7.67 billion market capitalization gold and silver mining company headquartered in Toronto. The company owns and operates six operational mines. It produced around 2.4 million gold equivalent ounces in 2020 alone and boasts 30 million ounces of proven reserves. It also boasts 59 million ounces of silver reserves.
It runs mines across West Africa, Russia, and the Americas. Kinross Gold has used acquisitions to drive its expansion and production. Kinross Gold stock trades for $5.91 per share at writing, and it boasts a 2.64% dividend yield.
The recent selloff in its share prices has been attributed to gold prices declining from earlier levels. The company’s management anticipates its production costs to go lower in the coming quarters. Rising gold prices could further boost its financial performance and turn things around for the company.
Barrick Gold
Barrick Gold (TSX:ABX)(NYSE:GOLD) is a mainstay for investors who own gold stocks. Barrick Gold is a $46.93 billion market capitalization mining company headquartered in Toronto. It owns and operates nine gold mines across South America, North America, Africa, and Australia.
Barrick Gold stock trades for $26.40 per share at writing, and it boasts a 1.94% dividend yield. Depressed gold prices have led to a steep decline in its valuation in recent weeks. Lower production volumes in its recent-most quarter combined with higher production costs to accelerate its downward correction.
However, the gold stock trades at a discount after the decline. As long as gold prices remain at current levels, Barrick Gold stands to generate significant free cash flow for shareholder dividends.
Foolish takeaway
Despite the harsh circumstances of global financial markets due to inflation, gold prices remain deflated. An ounce of gold is worth US$1,866.54 per ounce at writing, reflecting a 21.37% decline in the last 12 months.
Gold prices might start rising due to the impact of persistent inflationary conditions. Higher gold prices could boost the financial performance of gold stocks if the broader economic conditions do not become better. It could be the ideal time to invest in gold stocks to enjoy superior returns if gold prices rise.
Barrick Gold stock and Kinross Gold stock are two ideal picks for investors who want to leverage the performance of gold prices while keeping their money invested in the stock market.
