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Gold and silver prices are currently in a weird spot, now on the mend after a rather vicious and unpredictable plunge amid the beginning of the war between Iran and the U.S. Of course, precious metals tend to be a great hedge against macro hailstorms and a worsening of geopolitical issues.
But, at the end of the day, it remains as hard as ever, not only to tell what macro risks lie ahead (sometimes, it’s the risks we don’t see that can be the toughest to grapple with), but also how gold (and silver) will even respond. Could they move lower alongside stocks as they did just over a month ago?
In any case, I do think that gold and silver mining stocks are quite discounted, especially if you’re of the belief that gold prices can hold their own going into the year’s end. Given that gold has risen on peace talk hopes, I do think that this could be one of the rare instances where gold is a bit more correlated to stocks in a time of heightened geopolitical risk.
Any way you look at it, I think the miners stand out as great longer-term bets for investors who not only seek exposure to the precious metals and all the hedging benefits they provide, but deeper value, especially in a climate where gold prices could continue marching higher.
At the same time, though, the miners can be wildly volatile, and with a history of amplified pains in gold bear markets, investors must understand the risk/reward difference between physical gold and the miners. The value case, I think, stands out, especially when it comes to the premier miners.
Source: Getty Images
Agnico Eagle Mines: An industry juggernaut that’s worth a second look after taking such a big hit
Take Agnico Eagle Mines (TSX:AEM), which goes for 18.3 times trailing price-to-earnings (P/E) while paying a dividend yield just shy of 1%. The technical picture hasn’t looked all too great in recent months, but for those seeking to add exposure, I do view the name as a compelling watch.
Despite recent pressure on gold prices, the company’s latest quarterly results were impressive across the board. While Agnico isn’t the cheapest gold miner of the batch, I do think that investors should keep a close watch on the name, especially if the next leg for the precious metals ends up being higher, especially if the Iran war nears an end.
While Agnico is a gold miner, silver is a major byproduct of production. And given that gold and silver have risen hand-in-hand of late, I do view Agnico as being a great all-around bet. Of course, there’s no guarantee that gold and silver will stay more tightly correlated going into year’s end.
If the so-called NACHO (Not a Chance Hormuz Opens) scenario ends up playing out and the Strait stays closed for longer than expected, it’s tough to tell what happens next with gold since it has responded so negatively to escalations in the war. This begs the question: will gold start moving higher if the blockade stays longer? Or will it continue to tread water as gold acts more unpredictably? Time will tell.
