As oil falls and inflation fears rise gold stocks look attractive on valuation

By Staff Writer / July 21, 2021 / Article Link

Gold remans stable amid higher inflation. After the surge in May, the consumer price index surged 0.9% in the last month, following a 0.6% jump in May. This was the largest one-month change since June 2008, during the Great Recession.

Naturally, this has caused a lot of unease among investors and corporations looking to hedge against the negative effects of inflation. Gold prices and gold stocks have proven to be true many times over.

The acceleration in inflation should increase the demand for gold as an inflation hedge. As interest in the US dollar subsides, this creates a strong support level for the yellow metal. However, there are concerns that higher inflation may result in more hawkish Fed and higher interest rates, which could negatively affect gold.

So far in 2021, we’ve seen that the acceleration in inflation hasn’t affected Fed's course. Powell downplayed the inflation threat in his yesterday's testimony to Congress. He continued seeing higher inflation as transitory and said that conditions to trigger a policy shift are "still a ways off."

In Thursday’s trading session, gold price increased to above $1,820, temporarily reaching $1,830. It's not surprising, as an unmoved Fed amid higher inflation is a fundamentally positive factor for the yellow metal.

As we continue to climb our way out from the long and difficult COVID-19 pandemic, gold stocks provide good diversification options for your portfolio. Some of the strongest performing mining stocks right now include: Agnico-Eagle Mines (TSX:AEM)(NYSE:AEM) and Barrick Gold (TSX:ABX)(NYSE:GOLD).

Agnico-Eagle Mines is one of the strongest gold stocks due to a few very differentiating characteristics. The gold miner limits its operations to regions that are safe — politically and otherwis. Compared to most other gold companies that have operations in many outright dangerous parts of the world, Agnico’s operations are in areas like North America, Europe, and Mexico.

As gold prices continue to rise, Agnico-Eagle’s profits will closely follow. Investors can count on a 2.25% dividend yield this month. Based on production estimates, this dividend is likely to keep growing.

Barrick Gold is one of the largest and most well-known mining stocks on the TSX. It’s the go-to stock for gold exposure. It’s an ideal inflation hedge and safe haven. The company has been positively impacted by rising gold prices. Robust first-quarter results showed a 12% increase in realized gold prices accompanied by a 74% increase in free cash flow and an 81% increase in EPS.

These two gold miners are not the only ones to benefit from a move in gold prices. Goldman Sachs has put out a target for gold to hit $2,300 per ounce. This is a more than 30% increase from current levels – something that will have a major impact on mining stocks.



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