5 gold stocks to watch

Are gold stocks a good investment?

Gold stocks come with the same risks as investing in many other stocks. If you are looking for growth potential, then there are some great opportunities in the market, but as with many companies there is also the potential for low revenues and disruptions to the supply chain, which can affect share prices.

Despite this, a lot of people view gold stocks as a great alternative to investing in the precious metal itself. The share prices of gold mining and production companies don’t necessarily respond as quickly to changes to the value of gold, which means they can be a good way to hedge exposure to gold prices. There are even those who believe that gold stocks have the potential to outperform gold itself.

Gold is typically seen as a safe haven in times of financial crisis, which means that investors tend to flock to the precious metal as a hedge against inflation. However, this relationship is not set in stone. So, if global markets crash, then there is the possibility that the gold market and gold stocks could fall as well.

As an alternative to investment, you could trade gold stocks. By trading gold stocks, you are speculating on the price of the company’s shares, rather than taking ownership of the underlying shares themselves. This means that you can go short if you believe the company is due a decline in value, or long if you want to mimic the traditional position that you take when you invest. Especially given the volatile nature of the gold market, being able to go short provides a range of opportunities for traders.

Top 5 gold stocks to watch

When you trade gold stocks, you can gain exposure to every element of the industry – from mining to funding. We’ve compiled a list of five gold stocks that have become popular among traders, either to take a long position in anticipation of price rises or to short the company in periods of decline.

Barrick Gold Corp (ABX)

Barrick Gold Corp (ABX) is the largest company in the gold mining industry¹ – both in terms of its operating size and amount of gold produced. Barrick Gold is also among the world’s largest publicly traded copper producers. It was listed on the New York Stock Exchange (NYSE) in 1987.

Barrick Gold has experienced slow growth in recent years due to the company’s involvement in the mergers and acquisitions market, which has taken a toll on its balance sheet. However, the management team has been working to fix these problems.

Shares in Barrick Gold surged in October 2018 – up from $9.52 to $13.43 – after the company announced an increase in production and sales volume in its third quarter of 2018.

Royal Gold (RGLD)

Royal Gold, Inc (RGLD) is not involved in gold mining, but instead makes money through royalties and agreements with the producers themselves. Essentially, Royal Gold provides miners with financing: it provides cash up front, and in return receives the right to buy gold at a discounted price in the future.

Royal Gold has reported a steady performance and positive cash flows, which has rewarded shareholders over the last 16 years. The company has seen an increase in production at several of its key mining sites, and still has a number of future projects which could see considerable growth. The stock was up 11% in the first five months of 2018.

Gran Colombia Gold Corp (GCM)

Gran Colombia Gold (GCM) is a Canada-based gold and silver company that explores, develops and produces the precious metals – it is the leading Colombia-focused producer.²

Gran Colombia Gold currently has high levels of debt – at the start of 2018, GCM was $141 million in debt that was due by 2024. $86 million of this debt was converted into shares in May 2018, which put downward pressure on the share price.

Despite this, shares of Gran Colombia Gold have attracted attention because of the company’s appealing growth prospects and the management’s focus on eradicating GCM’s debt.

Alio Gold (ALO)

Alio Gold (ALO) is a mid-tier gold company that focuses on exploration and development in Mexico and the US. ALO is considered relatively young, having only begun production in 2010 and trading on the NYSE in May 2017.

In the short term, sentiment around ALO stock is likely to be quite pessimistic given a negative earnings announcement in June 2018. Their mine in San Francisco is also predicted to produce less and less gold over the next few years, which has caused shares of ALO to decline throughout 2018 – from $3.83 in January, down to $0.65 in November. However, the exploration of the company’s newly acquired mining project, Ana Paula, could see more growth over the coming years.

Argonaut Gold (AR)

Argonaut Gold (AR) is a Canada-based mining company that focuses on mine development and exploration in Mexico. It was founded in 2007 and listed on the Toronto Stock Exchange (TSE) in September of the same year.

Argonaut Gold is forecasting production to grow from 170,000oz in 2018 up to 215,000oz by 2020, which has led to considerable interest in the company. Argonaut Gold has developed three mines in Mexico already and is on the way to having three more. The company has also purchased two other mining firms, Pediment Exploration and Prodigy Gold, which has opened them up to income from other mining projects.

Argonaut Gold has significant growth potential, but the share price has declined throughout the year – from $2.85 in January 2018 to $1.29 in November 2018.

Gold ETFs

An alternative way to gain exposure to gold stocks is to trade gold exchange traded funds (ETFs).

There are a variety of options to look at when you’re deciding on the best gold ETF for you, as different funds will have different functions, costs and offerings.

There are some funds that buy and hold gold bullion. For example, GraniteShares Gold Trust ETF is designed to track the performance of the price of gold, through its holdings of gold bullion in secure vaults in London. Trading Graniteshares Gold Trust can be a great way to get exposure to bullion without trading the precious metal itself, but it is extremely sensitive to the price of gold. Similar gold-based ETFs include ETFS Physical Swiss Gold Shares ETF, iShares Gold Trust and SPDR Gold Shares.

Alternatively, you could look at equity-based ETFs that track companies involved in the mining and production of gold. For example, the Sprott Gold Miners ETF consists of a basket of over 25 gold and silver mining stocks that trade on US exchanges. Similar equity-based gold ETFs include VanEck Vectors Gold Miners ETF (US) and iShares MSCI Global Gold Miners ETF.

^{1, 2} Correct at the time of writing, 6 December 2018.