The gold trade had some investors a bit nervous in the first half of the year, and while momentum has since returned to the gold and silver trade, questions linger as to whether it’s safe to get back into the waters with the bullion ETFs or the more volatile mining stocks. In my view, only long-term investors looking to further diversify their portfolios need apply, as the gold trade looks set to shrug off the recent plunge into a correction.
This isn’t going to be the last time that gold encounters a vicious correction.
And given the lack of dividends (some of the miners do pay pretty decent, growing dividends), it might be a concern for some; I do think that gold has plenty to offer for those who understand its hedging benefits and are more than prepared to deal with its shortcomings (most notably, a relative lack of yield compared to “safer” investments).
In my view, gold continues to be a great asset to own to bet on the ongoing “debasement trade.” Will there be rate scares or stock market volatility that works against gold? Sure, but I do think that for those seeking relative value, the miners are a potential place to score a decent risk/reward.
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Agnico Eagle Mines
On the TSX Index, there’s no shortage of top-tier miners, but Agnico Eagle Mines (TSX: AEM) has to be my new gold standard. When it comes to companies, size isn’t always better. But, in the case of Agnico, it has unlocked some pretty remarkable economies of scale. Combined with premium assets and an equally premium-calibre management team, I think Agnico has all the makings of a go-to miner. These days, the shares look quite cheap, thanks in part to the gold meltdown just a few months ago.
Despite the surge in volatility (shares of AEM stock plunged nearly 4% on Wednesday alongside the broader market), the stock remains up a decent 18% so far this year. Like it or not, though, shares are back in a bear market, down 20% from their all-time highs. Indeed, gold is in the middle ground between blasting off in a new bull market and exhausting after a decent ricochet off 52-week lows. I’ll be frank: I have no idea what comes next for gold and its miners.
But what I do know is that gold is a pretty decent portfolio diversifier and, at these prices, I do see a well-run miner like Agnico Eagle Mines as a potential value play while the mining space fluctuates wildly, probably for the rest of the year and beyond, thanks in part to higher interest rate expectations, which tend to work against the price of gold. Longer term, though, I think AEM will shine. At 16.8 times trailing price-to-earnings (P/E), the shares look fairly valued.
Moving into 2027, the firm will benefit from new projects coming online. As the firm controls costs while opportunistically investing across the space in high-efficiency production expansion, I do think the bottom line has what it takes to keep going.
Whether the stock will keep marching higher, though, hinges on near-term fluctuations in gold prices. It’s tough to say, but in my view, the name looks compelling for those with a four-year horizon or more. With a decent, growing dividend (0.85% yield), the name will pay modestly for investors to wait.
