Some of the gold miners have been ridiculously hot over the past year, and while the gold trade recently suffered a contraction, it certainly feels like the long-term tailwinds are still very much in play as the “debasement trade” and central bank buying spree look to offset much of the nearer-term rate-related woes. Any way you look at it, the fast-moving gold miners seem to be at a bit of a checkpoint rather than a peak.
Of course, I could always be wrong, especially since a ton of variables impact the trajectory of interest rates and, in turn, the price of gold. From inflationary drivers (who would have thought that AI would be inflationary in the earlier days, with the price of various electronics going through the roof) to the trade war between Canada and the U.S. as well as escalating tensions in the Middle East, there’s a lot of geopolitical uncertainty that gold might not magically hedge this time around despite its history as an asset that can be leaned on when geopolitical chaos takes off.
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Kinross Gold: A huge gainer with legs?
But, at the same time, if gold doesn’t appreciate all that much, the miners still stand to gain, especially the high-quality ones that are doing a great job of mastering the art of low-cost production. When it comes to a name like Kinross Gold (TSX: K), which is up 471% in the past five years, I think there’s potential for more of the same as the stock moves on from its latest setback (a 38% dip), which it has more recently shrugged off.
Can shares of K make new highs going into year’s end?
I have no idea, nor does anybody else. It ultimately depends on where gold prices are headed. And while the whole debasement narrative still holds strong, it’s very hard to tell how much more geopolitics and rates will play into movements in the asset in the fourth and final quarter of the year.
Right now, K stock is halfway between making new highs and revisiting 52-week lows seen in the summer. I have absolutely zero idea where the stock will ultimately settle in the coming months. But, as a long-term investor who values the hedging benefits of gold and its miners, I like the price of admission right here, with shares going for 10.9 times trailing price-to-earnings (P/E). I’m also a big fan of the production impact of new, ambitious projects as the firm looks to keep drilling in mines with promising potential.
When you consider the direction of operating economics and the potential for gold to shine in the next five years, I must say that I’d prefer gold and miners’ shares to plunge back to 52-week lows or below, so I could add to a position at lower prices. So, is there more upside? Possibly. Is there downside? It’s also very much possible in the nearer term, especially with the elevated beta (1.5). Personally, I think it matters less what the gold markets do in the next year.
Bottom line
Instead, it’s the next 10 years that I view as most meaningful for the asset class, as a barrage of unknowns and disruptions looks to impact the move in gold and the miners. And, in my view, the risk/reward over the next decade looks to be tilted in favour of investors.
