Gold Shines Brightly Amid Economic Uncertainty

Gold posted strong gains in July, rising 3.1% to end the month at $1,971 per ounce. This brings the year-to-date return to 8.7%, as gold continues to benefit from economic and geopolitical uncertainties. While global gold-backed ETFs saw modest outflows in July, COMEX futures positioning remains net long, indicating ongoing investor interest.

Our analysis shows that the primary drivers boosting gold prices are rising inflation expectations and a weaker US dollar. Breakeven inflation rates jumped in July despite moderating actual inflation, reflecting bond market concerns about lingering inflationary pressures in the economy. The US dollar also declined against major currencies, making gold more affordable for foreign buyers.

Historically, gold tends to perform well in January and August. The January boost likely reflects portfolio rebalancing and inflation-hedging demand amid seasonal softness in Treasury yields. August strength may be explained by anticipation of volatility heading into September, as well as seasonal Indian and Chinese buying ahead of key fall festivals and events.

Seasonal Patterns

However, this August could diverge from the seasonal pattern. With the US economy holding up better than feared, equities are defying typical summer doldrums. The low volatility environment has also kept a lid on hedging demand. While the Bank of Japan’s policy shift could ignite some currency volatility favourable for gold, Treasury yields are expected to trend higher as inflationary pressures ease. Physical demand from India and China also looks uncertain given high domestic gold prices and weak economic conditions.

Nevertheless, there are good reasons to believe gold’s uptrend will resume later this year. The economic outlook remains precarious despite some stabilization in recent months. Leading indicators suggest slowing growth amid high inflation and tighter financial conditions. Geopolitical frictions also continue to simmer, keeping geopolitical risk elevated.

In this uncertain environment, gold remains attractively valued compared to stocks. Equity valuations still look stretched despite the year-to-date pullback, while sentiment remains complacent. With recession risks rising, gold’s haven appeal could strengthen into year-end as volatility picks up. Central bank buying also continues at a robust pace, signalling that monetary authorities see value in holding gold reserves.

Enhance Returns

For investors, adding portfolio exposure to gold or gold mining equities can provide an attractive risk management tool. Gold’s negative correlation with stocks and bonds makes it an effective diversifier during market turmoil. The miners also offer upside leverage to rising gold prices. Traditionally defensive sectors like consumer staples and utilities are trading at extremely high valuations, making gold and gold stocks a relatively inexpensive defensive allocation.

Top Gold Mining Producer Stocks to Consider

Newmont Corporation (NEM)

Newmont is the world’s largest gold miner, with a broad portfolio of assets located primarily in the Americas and Australia. The company has created annual gold production over the past decade through acquisitions and investments in new mines. Newmont offers direct exposure to higher gold prices along with a healthy dividend yield.

Barrick Gold Corp (GOLD)

As the world’s second largest gold producer, Barrick operates mines in 13 countries. The company’s production profile has expanded significantly in recent years following the Randgold merger in 2018. Barrick also stands out for its industry-leading balance sheet. At under 10x forward earnings, Barrick trades at a discount to peers.

Agnico Eagle Mines Ltd (AEM)

Canadian miner Agnico Eagle has built a reputation for high-quality assets and solid operational execution. An emphasis on low-risk jurisdictions has helped Agnico deliver industry-leading margins and cash flows. Recent acquisitions have enhanced Agnico’s growth pipeline and geographic diversification. The stock offers an attractive combination of yield and growth.

Kinross Gold Corp (KGC)

Kinross Gold has transformed itself in recent years through disciplined capital allocation and a focus on cash flow generation. The company's portfolio centres around low-cost mines in North America, West Africa and Russia. Kinross offers among the highest production growth and lowest costs in the industry, along with a healthy balance sheet.

Gold Fields Ltd (GFI)

This South African miner has expanded globally with assets in Australia, Peru, Chile and West Africa. The newly acquired Yamana Gold assets further boost Gold Fields' growth outlook while lowering costs. The company expects to nearly double production over the next three years. Gold Fields trade at just 7x earnings and offers among the highest free cash flow yields in the sector.

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Top Gold Mining Developer Stocks to Consider

Karora Resources‍

Karora Resources is a growing gold and nickel producer in Western Australia with its main assets being the Beta Hunt mine, Higginsville operations, and Lakewood Mill located near Kalgoorlie. With over 1,900 km of highly prospective land, Karora produced a record 133,836 ounces of gold in 2022 and over 80,000 ounces in the first half of 2023, aiming to reach 170,000-195,000 ounces by 2024. A leader in ESG, Karora achieved carbon neutrality in the past two years. The company believes growing to 200,000 ounces of annual production will re-rate its valuation to the next tier of gold producers, and Karora is debt-free and well-positioned to self-fund growth from operational cash flow.

Treasury Metals‍

Treasury Metals is a Canadian gold exploration and development company focused on advancing its Goliath Gold Complex in Northwestern Ontario, which contains 2.1 million ounces of measured and indicated resources and 1.3 million ounces of proven and probable reserves. The project benefits from proximity to infrastructure like roads, power, rail, and communities. Treasury also has early-stage exploration projects in Ontario, including Gold Rock and a joint venture at Weebigee-Sandy Lake. The company aims to foster open dialogue with regional communities and Indigenous Nations to create sustainable economic opportunities, safe workplaces, social value, and community well-being.

‍Signal Gold‍

Signal Gold is a TSX and OTCQX-listed gold mining company operating in Nova Scotia and Newfoundland. The company is advancing the high-grade Goldboro Gold Project and operates the Point Rousse mine, mill, tailings facility, and port. Signal Gold also owns 15,000 hectares near the past-producing Nugget Pond Mine. The company's main goal is to produce 150,000 ounces of gold per year within the next 5 years.

First Mining Gold‍

First Mining Gold is a Canadian gold development company focused on advancing its flagship Springpole Gold Project in Ontario, one of the largest undeveloped gold projects in Canada, and the recently acquired Duparquet Gold Project in Quebec, a top 20 Canadian gold asset. The company also has interests in several partnership assets including the Pickle Crow project in Ontario with Auteco Minerals, the Hope Brook project in Newfoundland with Big Ridge Gold, and is the largest shareholder of Treasury Metals which is advancing the Goliath Gold Complex in Ontario. First Mining was founded in 2015 by Keith Neumeyer, the founding President and CEO of First Majestic Silver Corp.

In today's uncertain economic environment, gold remains a compelling portfolio diversifier. Adding exposure through gold mining equities can enhance returns while mitigating volatility. Leading miners like Newmont, Barrick, Agnico Eagle, Kinross and Gold Fields represent quality assets trading at favourable valuations. For investors seeking an inflation hedge and market protection, gold and gold stocks deserve consideration.

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