10 Compelling Reasons Why Gold Stocks Are Poised to Outperform
As the global economy continues to navigate through uncertain times, investors are seeking safe-haven assets to protect their wealth. Gold, in particular, has been a popular choice, with its value soaring to new heights in recent years. But what about gold stocks? Are they a viable investment option? In this article, we'll explore 10 compelling reasons why gold stocks are poised to outperform and why you should consider adding them to your investment portfolio.
Reason #1: Central Banks Are Hoarding Gold
Central banks worldwide have been adding gold to their reserves at an unprecedented rate. In the first half of 2024, they added nearly 500 tons of gold, breaking the previous year's record. This trend is expected to continue, driving up demand for gold and, in turn, boosting gold stock prices.
Reason #2: Generational Technical Breakout
Gold has broken out of a decade-long, picture-perfect, cup-with-handle base structure, which tends to persist for years. This technical breakout signals a significant shift in the gold market, making it an attractive time to invest in gold stocks.
Reason #3: Costco Sparks Retail Gold Demand
Costco Wholesale's decision to add gold bars to its locations has sparked a surge in retail gold demand. With sales of up to $200 million in gold bars per month, this trend is expected to continue, driving up demand for gold and gold stocks.
Reason #4: Relative Strength vs Silver
Gold has begun to dramatically outperform silver and the iShares Silver Trust (SLV) over the past two months. This relative strength is a bullish sign for gold stocks, indicating that they may be poised to outperform.
Reason #5: Gold as a Safe-Haven Investment
Geopolitical tensions and instability in the Middle East and elsewhere are driving investors to gold as a safe-haven asset. As global uncertainty continues to rise, gold stocks are likely to benefit from this trend.
Reason #6: Gold as a Store of Value
Gold's price stability, global use, and ability to maintain value make it an attractive store of value. As investors seek to diversify their portfolios, gold stocks are likely to become increasingly popular.
Reason #7: Gold Rises on New Interest Rate Cuts
Investors are pricing in a rate cut in September, which tends to be bullish for gold. With interest rates expected to remain low, gold stocks are likely to benefit from this trend.
Reason #8: Gold has Bullish Year-End Seasonality
September through February is the optimal time to be long gold, based on seasonal trends. With gold stocks poised to benefit from this trend, now may be an attractive time to invest.
Reason #9: World's Largest Gold Miner: Bullish Forward Estimates
Newmont Mining (NEM) earns a best possible Zacks Rank #1 (Strong Buy) and analysts see healthy, high double-digit EPS growth in the coming quarters. This bullish outlook is a positive sign for gold stocks.
Reason #10: Gold Stocks Enjoy Cheap Valuations
Many gold stocks are growing rapidly but remain inexpensive from a valuation perspective. With gold stocks poised to outperform, now may be an attractive time to invest.
The Bottom Line
Volatile global currency markets, geopolitical escalations, and upcoming interest rate cuts are just some of the reasons to be long gold over the next 6-12 months. With gold stocks poised to outperform, investors should consider adding them to their investment portfolio.
Current Gold Market
The price of gold has achieved several record highs this year, with the latest record-breaking price occurring on August 13, when gold rose to over $2,506 per ounce. Gold's value has soared to new heights due to a long period of high inflation, geopolitical and economic uncertainty, and investors seeking to hedge against losses and protect against market declines.
Best Gold Investments
- Gold bars and coins: offer liquidity, are in high demand, and can be a good investment when prices are high.
- 1-ounce gold coins, such as the Gold Eagle and Gold Buffalo, are recommended due to their strong demand and recognition as legal tender in some states.
- Gold ETFs: can be a smart choice for investing in gold, as they offer a diversified portfolio of gold companies and are often less risky than investing in a single company.
- Gold mining stocks or mutual funds: can be suitable for long-term investors seeking portfolio diversification and potential appreciation in gold prices.
Gold Investments to Avoid
- Gold jewelry: may not be the best investment due to the final product and other factors that come into play.
- Modern collectibles and proof coins: often have significant markups and may not be a good investment due to predatory companies.
- Gold futures and options: carry significant risk and are not recommended for beginner investors due to the leverage involved.
Investment Strategies
- Physical gold, such as gold bars or gold coins, is typically better for long-term investing.
- Gold ETFs or gold stocks might be more suitable for those looking to capitalize on shorter-term price movements.
- It is recommended to contact a financial advisor to determine the best gold investment strategy for individual financial goals and risk tolerance.
Expert Opinions
- Christine Luken, financial coach, recommends investing in gold coins, especially those considered legal tender.
- Andy Schectman, owner and president of Miles Franklin Precious Metals, recommends 1-ounce gold coins, such as the Gold Eagle and Gold Buffalo.
- Steven Conners, founder and president of Conners Wealth Management, recommends investing in low-cost gold ETFs.
- Kevin DeMeritt, founder and owner of Lear Capital, recommends gold mining stocks or mutual funds for long-term investors seeking portfolio diversification.
