Gold stocks have had the opportunity to shine again, with broader markets under pressure while rates on the 10-year U.S. Treasury note continue to take off. No doubt, it was this week’s comments by the Federal Reserve that sent shockwaves through markets to end an otherwise bleak week.
The Fed is calling for slower economic growth before inflation can be taken out. Indeed, higher rates are possible. However, the likeliest scenario leaves rates at today’s elevated levels until key contributors to CPI have the opportunity to come back down to Earth. All considered, Chairman Jerome Powell’s comments were not taken so well by the markets.
Rate hikes and Fed fears are back. Time to go for gold?
Moving forward, robust economic growth numbers could be viewed as bad news! It all comes down to inflation and whether it will leave room for the Fed to backtrack on rates. Additionally, cooler economic growth that warrants rate cuts may also spook investors. So, it certainly does seem like the broader markets are between a rock and a hard place.
Fortunately, there is a scenario that results in a soft landing and rate cuts. For now, however, such a scenario may seem just a bit far from reach. In light of more rate fears and a U.S. 10-year note that briefly broke the 5% mark, gold has been flirting with the US$2,000 per-ounce level. Precious metals aren’t just pretty to look at; they can act as great hedges from economic shocks and surges in macro uncertainty.
Right now, there’s no shortage of uncertainty. Geopolitical risks have risen, and the Fed continues to be what investors fear most this Halloween season!
Though I’d be an advocate for buying the dip in various battered value plays, I’m also not against adding a bit of gold exposure to your portfolio here. It’s always a good idea to have a backup plan or a hedge against the unknown.
Though gold won’t make you rich, it can help you steady your ship through patches of rough waters. I’d say no more than 4% of your portfolio should be in gold. If you have zero exposure, however, Canada’s brightest gold miners, such as Barrick Gold (TSX: ABX), seem worth a look.
Barrick Gold
Barrick stock remains my top gold stock for the long haul. It’s not just well-run; it’s well-positioned to rally to new highs going into year’s end if the market continues its descent at the hands of a growing number of woes. The stock surged more than 19% from its $19 and change lows in October. Quite the big upward move. And I don’t think it’s quite over yet, especially if gold can sustain a run to its own highs.
For now, the stock yields a nice 2.69%. If gold shines, ABX stock likely will, too! Just be warned that commodity price moves work both ways. Just as gold can pop, it can drop! So, do be mindful that gold producers can be a rather rocky ride.
