Between high inflation and rising interest rates, the global economy is shaky at best. Amid all the volatility, investors across the board are seeking ways to protect their portfolios. When market volatility hits, gold tends to rise in value.
The possibility of a recession, persistent geopolitical tensions, and the possibility of another major financial crisis has become a tailwind for gold.
To cool inflation down, the U.S. Federal Reserve and Bank of Canada (BoC) increased interest rates rapidly for over a year. While the measure has helped slow inflation down, reduced economic activity also led to several U.S.-based banks collapsing under the pressure. It is possible for regulators to slow interest rate hikes.
Regardless of how the situation develops, gold prices have crossed the US$2,000-per-ounce mark. As of this writing, gold is valued at around the US$2,020 mark. With no signs of the market embracing stability soon, gold prices can rise higher.
If you are bullish on gold going past its all-time highs, it might be a good idea to invest in these two gold-mining stocks to enjoy stellar returns on your capital.
Barrick Gold
Barrick Gold (TSX: ABX) is a no-brainer for investors seeking gold stocks for their self-directed portfolios. The $46.47 billion market capitalization mining company headquartered in Toronto is the top precious metals producer in the country. Failures in the banking segment boosted gold prices, in turn, driving Barrick Gold stock higher on the stock market.
As of this writing, Barrick Gold stock trades for $26.39 per share, boasting a 2.06% dividend yield. At current levels, Barrick Gold stock is down by over 33% from its May 2020 levels. If the tailwinds persist, gold prices can rise further, translating to more capital gains for Barrick Gold stock investors. While it trades for a seemingly expensive 80.72 times trailing price to earnings, Barrick Gold stock can be a bargain if gold prices rise in the coming weeks.
Franco-Nevada
Franco-Nevada (TSX: FNV) is not a gold producer like Barrick Gold. Instead, the $40.02 billion market capitalization company enjoys gold exposure as a gold-focused royalty and streaming company. It has a diversified portfolio of cash flow-producing assets, generating a bulk of its revenue through gold, silver, and platinum. It also offers exposure to other commodities like natural gas, natural gas liquids, and crude oil.
The higher-commodity-price environment allowed Franco-Nevada stock to increase its revenue to $1.3 billion and its adjusted EBITDA to $1.1 billion last year. The company ended the year in a great liquidity position to invest in growth and acquire more top-notch mining assets for its diversified portfolio. Due to its royalty and streaming-based business model, Franco-Nevada stock has no exposure to operational costs, allowing it to generate steady and reliable cash flows.
As of this writing, Franco-Nevada stock trades for $208.84 per share, offering payouts at a 0.90% dividend yield.
Foolish takeaway
While gold does not look like it will be surging well above the US$2,000 mark, it remains higher than it has been for a while. Investing in gold stocks offers you a more accessible and liquid method to gain exposure to gold prices. Gold stocks are an excellent way to hedge your bets on gold while generating a passive income through shareholder dividends.
If gold prices continue rising, investing in the right gold stocks can help you generate excellent returns through dividend income and capital gains. If you decide to invest in gold stocks, you must remember that gold prices can swing wildly on any given week. It is possible for mining stocks to amplify the volatility.
If you have a well-balanced portfolio and want to gain exposure to potentially rising gold prices, Barrick Gold stock and Franco-Nevada stock can be excellent investments to consider.
