Generally, gold prices and interest rates have an inverse relationship. It suggests when interest rates rise, gold prices will experience a pullback and vice versa. However, in the last year, despite the steep hikes in bond rates, gold prices have gained momentum. Let’s see why.
Gold is viewed as a safe haven asset and the go-to investment during periods of economic turmoil and geopolitical tensions. In the last 18 months, the threat of a global recession and Russia’s invasion of Ukraine have both acted as tailwinds for gold prices.
The precious metal is also an inflation hedge and maintains its intrinsic value when fiat currencies face the threat of devaluation. As inflation touched multi-year highs in 2022, investors have expectedly flocked towards gold.
Moreover, countries such as China have increased gold reserves considerably to reduce their dependence on the U.S. dollar. Now, with interest rate hikes coming to an end, it’s quite possible for the yellow metal to gain pace in the next 12 months.
Here are two top gold mining stocks you can consider buying right now if gold prices surge higher.
Barrick Gold stock
Valued at a market cap of $35 billion, Barrick Gold (TSX: ABX) is one of the largest gold miners globally. It focuses on operating Tier 1 mining assets, which are basically large mines with significant remaining resources.
Barrick Gold aims to produce 6.5 million ounces of gold equivalent each year through 2032. Investors should note that these estimates also include copper production.
The company’s top-tier mining portfolio is backed by a strong balance sheet. In the last few years, Barrick Gold has decreased its balance sheet debt considerably, shielding it from recent interest rate hikes.
Moreover, the sale of non-core assets has further strengthened its financials while consistent cash flows allow it to pay shareholders an annual dividend of $0.61 per share, indicating a yield of almost 3%.
Priced at 12.8 times forward earnings, Barrick Gold stock is very cheap, given its adjusted earnings are forecast to rise by 18% in 2023 and 31% in 2024. Analysts tracking ABX stock expect it to surge over 50% in the next 12 months.
Wheaton Precious Metals stock
Wheaton Precious Metals (TSX: WPM) is a royalty company, which means it provides capital to gold miners in exchange for purchasing the mined commodity at a lower price in the future. It then sells the commodity at a profit and recycles the proceeds to fund additional mining operations.
Wheaton generates a majority of its revenue from precious metals such as gold and silver. So, similar to traditional mining companies, its performance is also tied to commodity prices.
But unlike miners such as Barrick Gold, Wheaten enjoys an asset-light business model and is primarily a financial partner. In the last 10 years, WPM stock has returned 151% to shareholders in dividend-adjusted gains. Comparatively, the TSX index has returned 114% since September 2013.
The company currently offers shareholders a forward yield of 1.5%, and dividends have more than doubled in the past decade.
Priced at 35 times forward earnings, WPM stock might seem expensive. But analysts remain bullish and expect shares to surge close to 40% in the next 12 months.
