Gold Price Rebounds on Global Growth Concerns: 5 Top Picks

Gold prices are set to record the first weekly gain, reversing the downtrend of the past one month. On Sep 19, spot gold was up 0.3% at $1,503.20 per ounce and U.S. gold futures were also up 0.3% at $1,510.9 per ounce.

Behind the Uptick

A second rate cut by the Fed just a day before and a weaker U.S. dollar are the primary reasons for gold’s uptick. The lower the interest rates, the lesser will be the opportunity cost of holding the non-yielding bullion, making gold attractive for investors holding other currencies.

Gold price climbed to more than 1,500 per ounce for the first time in August since April 2013 on concerns related to the prolonged U.S.-China trade war and a global economic slowdown. Buying pressure on gold is likely to remain firm as investors will focus on precious metals as a store of wealth and hedge against market turmoil.

Notably, at the end of 2018, around $8 trillion was invested in bonds with negative returns. However, this figure has increased substantially to $16 trillion so far in 2019. This clearly indicates worldwide slowdown fears among market participants.

Trimmed Projections for Global Economic Growth

On Sep 19, the Organization of Economic Co-Operation and Development (OECD), an intergovernmental economic group, projected that the world economy will grow just 2.9% in 2019, the lowest forecast since 2009. The OECD forecast 4% global growth in 2019 just 18 months ago.

The International Monetary Fund (IMF) reduced its growth forecasts for the global economy for 2019 and 2020. It predicts growth of 3.2% in 2019, down from its April forecast of 3.3%. The world economy is expected to witness growth of 3.5% in 2020, lower than its previous projection of 3.6%.Moreover, the World Bank also squeezed its global growth forecast for 2019 to 2.6% from the previously forecast 2.7% growth.  

All three economic organizations have cited the tariff war between the United States and China as the primary reason for global slowdown given its adverse effect on exports and manufacturing. Additionally, geopolitical problems stemming from Brexit and Middle East have intensified fears of a global downturn.

U.S.-China Trade Conflict Continues

On Sep 19, Michael Pillsbury, a key White House adviser said the Trump administration is set to increase tariff pressure on China if a trade deal is not agreed upon soon as Washington has so far imposed only “low level tariffs” on China.

The hard statement came at a time when the two sides are going to meet this week in order set stage for a high-level meeting to reach at least an interim trade deal. Further escalation of tariff will be disastrous for a struggling Chinese economy as well as for the U.S. economy, which has lost its pace to a large extent.

Our Top Picks

At this stage, it will be prudent to invest in gold stocks with strong growth potential. We have narrowed down our search to six such stocks, which soared in the past three months. Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past three months.

Kinross Gold Corp. KGC engages in the acquisition, exploration and development of gold properties in the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. The company has expected earnings growth of 160% for the current year. The Zacks Consensus Estimate for the current year has improved by 73.3% over the last 60 days. The stock has jumped 31.9% in the past three months.

Royal Gold Inc. RGLD acquires and manages precious metal streams, royalties and related interests, with the primary focus on gold. The company has expected earnings growth of 77.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 18.9% over the last 60 days. The stock has jumped 25% in the past there months.

AngloGold Ashanti Ltd. AU is an independent, global gold mining company with mines and exploration projects across Africa, Americas and Australasia. It is the third-biggest gold mining company globally in terms of production. The company has expected earnings growth of 154.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 20.5% over the last 60 days. The stock has soared 15.7% in the past three months.

Kirkland Lake Gold Ltd. KL engages in the provision of mining and mineral exploration. It focuses on gold assets primarily in Canada and Australia. The company has expected earnings growth of 75% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.7% over the last 60 days. The stock has soared 15.1% in the past three months.

Alamos Gold Inc. AGI engages in the acquisition, exploration, development, and extraction of gold deposits in North America. It also explores for silver and precious metals. The company has expected earnings growth of 320% for the current year. The Zacks Consensus Estimate for the current year has improved by 50% over the last 30 days. The stock has surged 6.8% in the past three months.

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Royal Gold, Inc. (RGLD) : Free Stock Analysis Report
 
Alamos Gold Inc. (AGI) : Free Stock Analysis Report
 
AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
 
Kinross Gold Corporation (KGC) : Free Stock Analysis Report
 
Kirkland Lake Gold Ltd. (KL) : Free Stock Analysis Report
 
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