What You'll Learn Today:
We are in the last trading week of 2021 and gold is currently trading at around $1,813 an ounce. The metal has held its ground lately as the spread of the Omicron variant has renewed fears that it might derail the ongoing global economic recovery. It has also quelled investors’ appetite for riskier assets, thus lifting bullion’s safe-haven appeal and bringing investors back to gold.
Gold is anticipated to gain further in 2022 on the back of uncertainty regarding the coronavirus variant, continued inflation and geopolitical tensions; we suggest buying stocks like Seabridge Gold (SA), Fury Gold Mines (FURY), and US Gold Corp (USAU).
Gold’s Run So Far This Year
Gold’s sailing has not been smooth this year due to a myriad of reasons — the rollout of vaccinations, ongoing economic recovery, lack of investment demand and consistent dollar strength. The yellow metal has shed its value 4.3% so far this year, suggesting that it is headed for the first annual loss since 2018. This is in stark contrast to last year’s growth of 24.6% — the strongest annual increase in a decade. The stellar performance was primarily due to the safe-haven demand stemming from the uncertainty amid by the COVID-19 pandemic and low interest rates. Gold had even crossed the $2,000 an ounce milestone — the first time in history.
Gold has averaged around $1,806 an ounce so far in 2021. Gold prices have been weighed down mainly by low investment demand for a major part of the year, which overshadowed strength in demand in other sectors. Jewelry demand has been high aided by the ongoing global recovery. Technology demand has also been on the rise and back to pre-pandemic levels, driven by the continued recovery in electronics. On the supply side, even though mine production has picked up steadily owing to fewer COVID-19 production interruptions compared to last year, recycling activity remained weak due to lower gold prices.
The lack of a spike in gold prices made investors apathetic toward the yellow metal. It was a solid year for equities, with all major market indexes racking up healthy returns year to date. A stronger greenback has not helped either, as the U.S. dollar and gold prices are generally inversely correlated. The U.S. dollar index is up around 7% this year. A stronger US dollar offsets higher inflation expectations and stable interest rates, preventing the precious metal from holding onto the gains. Also, several market commentators are suggesting that investment flows may have switched from gold to cryptocurrencies this year.
On a positive note, per the latest report by the World Gold Council, gold exchange-traded funds (ETFs) saw inflows of 13.6 tons ($838 million) in November — the first month of positive flows since July. Global gold-backed ETF holdings recovered from the year-to-date lows seen in October to 3,578 tons ($208 billion) in November. This was driven by the resumption of investment demand for larger gold ETFs amid decades-high inflation and heightened market volatility. Central banks in developed markets added to their gold reserves for the first time since 2013, per the World Gold Council. This holds promise for gold.
Expectations for 2022
According to experts, the negative risk appetite, fueled by the Omicron worries and US Treasury yields being low that reduce the opportunity cost of holding bullion, will support gold prices in 2022. The Omicron-led uncertainty could lead to a more dovish central bank stance in 2022. Issues over the domestic investment bill and the geopolitical risks around Ukraine will also boost gold’s appeal.
The personal consumption expenditures price index (PCE index), one of the main measures of inflation and consumer spending trends in the U.S. economy, surged 5.7% in November, reflecting increases in both goods and services. This was the highest since 1982. The Consumer Price Index, another key inflation metric rose 6.8% in November, also the highest since 1982. This has bolstered expectations that elevated inflation is likely to persist. Gold is widely considered as a hedge against inflation and market uncertainties.
In 2022, demand for gold will be supported by growing jewelry and technology demand, and central bank purchases. Demand for physical gold is seasonally higher starting in the later part of the year aided by the festival and wedding season in India, followed by Chinese Lunar Year and Valentine's Day. Demand in India has been strong lately on pent-up demand, improving economic momentum and consumer confidence.
India and China that roughly account for around 50% of consumer gold demand will continue to sustain demand for gold. Use of gold across energy, healthcare and technology is on the rise. So, there will be an eventual demand-supply imbalance that is likely to drive gold prices, which bodes well for the industry.
We have handpicked three gold-mining stocks, which carry a Zacks Rank #2 (Buy) and are poised to perform well in 2022.
3 Gold Stocks to Buy Now
Seabridge Gold: The company holds a 100% interest in several North American gold resource projects. The company's principal assets are the KSM and Iskut properties located near Stewart, British Columbia, Canada and the Courageous Lake gold project located in Canada's Northwest Territories. KSM is the world’s largest undeveloped project by gold resources. The acquisition of Snowfield is expected to increase KSM’s existing reserves and enhance project economics. The company recently engaged in an exploration and drilling program in Iskut, which continues to point toward a potential large gold-copper porphyry system. It intends to further explore the Iskut, Snowstorm and 3 Aces projects for selling or entering into joint venture arrangements with major mining companies. The company’s debt-free balance sheet provides it a competitive edge.
Seabridge Gold ranks first in gold and copper reserves among major listed gold companies. From 2003 to 2020, the company’s gold resources have grown by 915%. It strives to provide shareholders with exceptional leverage to a rising gold price. Over the past 60 days, the Zacks Consensus Estimate for the company’s 2022 earnings has moved up 18%.
Fury Gold Mines: The company is a Canadian-focused gold exploration company strategically positioned in three prolific mining regions: James Bay (Quebec), the Golden Triangle (British Columbia) and the Kitikmeot Region (Nunavut). It has recently entered into an agreement to divest its 100% interest in the Homestake Ridge gold-silver project that will simplify its portfolio. The company recently announced results from the Three Bluffs deposit expansion drilling at its Committee Bay project in the Kitikmeot region of Nunavut. These are the best drill results the project has seen in five years and present a very promising achievement for the project. The high-grade hole opens up considerable expansion opportunities and confirms that Committee Bay represents a major gold exploration opportunity. It provided results for six core drill holes at the Eau Claire project located in the EeyouIstchee Territory in the James Bay region of Quebec. The drilling focused on demonstrating the potential to expand the deposit to the west on both the Hinge and Limb target areas signals that this resource has room to grow.
Fury Gold continues to aggressively grow and advance its multi-million-ounce gold platform through careful project assessment and exploration excellence. It has set a goal to spend at least 70% of funds on exploration and drilling activities. The Zacks Consensus Estimate for the company’s 2022 earnings indicates year-over-year growth of 27%. Over the past 60 days, the estimates have moved up 5%.
US Gold Corp: USAU is a U.S.-focused gold exploration and development company advancing high potential projects in mining-friendly jurisdictions of Wyoming, Nevada and Idaho. Its exploration efforts combine deep experience with state-of-the-art leading-edge technology to help it drive towards exploration success. It is advancing the CK Gold Project located in southeast Wyoming. The company recently provided a pre-feasibility study (“PFS”) for its CK Gold Project and has published its SK-1300 Technical Report Summary. The project appears to be very attractive with robust project economics. It currently has proven and probable mineral reserves of 1.01 million ounces of gold and 248 million pounds of copper. Its strong liquidity position and no debt positions it well for growth.
Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved up 33%. The estimates currently indicate year-over-year growth of 17%.