Precious metals prices soared in the past year, but the share prices of some gold and silver producers have underperformed the commodities. Investors who missed the rally are wondering if gold stocks or silver stocks are undervalued and good to buy for a self-directed portfolio.
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Gold outlook
Gold trades near US$2,710 per ounce at the time of writing. The price of the yellow metal is up 25% over the past 12 months.
Central banks around the world have been stocking up on gold. Retail sales through banks and stores like Costco (NASDAQ: COST) have also made it easier for people to buy physical gold. Gold exchange-traded funds (EFTs) have also driven demand.
Investors are increasingly looking for alternatives to stocks to diversify their portfolios. People who live in countries with currencies that are volatile or steadily weakening can hold gold as a hedge to preserve wealth.
On the supply side, finding new deposits that are low cost to mine is getting increasingly harder, although China recently announced a major new gold discovery that could impact the market in the coming years.
Finally, investors often turn to gold at times of geopolitical or economic uncertainty. In the near term, the outlook for the price of gold should be positive.
Silver outlook
The price of silver often moves with gold as buyers tend to pick up or sell the precious metals in tandem. Silver trades near US$32.50 per ounce at the time of writing, up about 40% over the past year.
Silver has extensive industrial uses that make it different from gold. This could be the reason it has outperformed in the last 12 months.
Silver has high conductivity and anti-bacterial qualities that make it ideal for medical instruments, solar panels, and charging stations for electric vehicles, among other industrial uses. The metal also remains popular for jewellery.
Industrial demand for silver is expected to surge in the coming years amid the shift to renewable energy and electric vehicles.
Gold stocks or silver stocks
In the current environment, it might be worthwhile to focus on the streaming players or the major producers that have underperformed.
Streamers are companies that do not operate mines; they negotiate contracts to buy production from mining companies at discounted prices during the ramp-up stage. Miners will enter these contracts to raise capital to get mines built.
Wheaton Precious Metals (TSX: WPM) is a good example of a streaming company to consider. Originally focused mainly on silver, WPM pivoted to add more gold to diversify its exposure. That strategy has paid off in the past few years.
WPM stock trades near $88 on the TSX at the time of writing. It is up 35% in the past year and has risen 135% in the past five years.
Gold majors, like Barrick Gold (TSX: ABX), could also be worth a look as contrarian picks. ABX stock is only up 7% in the past year compared to the much better performance by gold. High inflation and mining disruptions have hindered producers, but there should be better days on the horizon.
Barrick reported third-quarter 2024 results that came in much better than last year. Adjusted net earnings rose to US$529 million from US$418 million. Free cash flow jumped to US$444 million from US$359 million. The Pueblo Viejo expansion project is finally starting to deliver as expected. Barrick says its exploration activities are on track to deliver another year of reserve replacement.
The bottom line on gold and silver stocks
Investors seeking to boost their precious metals exposure should look at diversifying across gold and silver opportunities. The streamers, like WPM, give you good exposure to price hikes without the operational risks that come with owning the miners. Contrarian investors, however, might want to start nibbling on the miners like Barrick that have underperformed but could see a meaningful rebound in the next few years.
