3 Gold Stocks I’m Personally Thinking About Adding Immediately

The rising price of gold has truly been an incredible phenomenon to watch in recent years. Indeed, spot gold prices have surged from around $1,800 per ounce five years ago to nearly $4,100 per ounce at the time of writing. That’s good for a return of 128% over this period, much better than the roughly 80% return the S&P 500 has provided over the same time frame.

So, are investors who are very overweight gold likely to outperform over the next five years? It’s hard to say. There are a number of dynamics driving the price of gold higher right now that may take a breather at some point. From institutional buying to central banks looking to bolster their currencies, there are a myriad of reasons that gold is surging that has nothing to do with you or I buying a few ounces here or there.

That said, I do view precious metals as a valuable asset class from a portfolio diversification standpoint. Here are three top ways to play this trend, in my view. 

SPDR Gold Shares ETF (GLD)

For active and passive investors alike looking for an exchange traded fund which closely tracks the price of gold, the SPDR Gold Shares ETF (GLD) is an excellent option to consider, in my view. 

Indeed, this ETF’s ability to track the price of gold tightly, while providing investors with the ability to benefit from surging retail and institutional demand for gold means this is about as good as it gets in terms of providing highly liquid exposure to the price of gold over time. 

As is the case with other ETFs tracking broader sectors or trends, GLD has become the benchmark asset upon which many precious metals traders assess their performance. And while there are other leveraged or higher-beta ways to play the rising price of gold (I’ve got two more ideas on my list), this ETF could be the least-risky investing vehicle for those seeking reliable exposure to precious metals over time.

In my view, all investor types (active, passive, or a mix of the two) can benefit from holding a small slice of their portfolio in gold via GLD or similar ETFs. With an expense ratio of 0.4% and plenty of upside potential ahead (if you’re in the hard money mob), this is a gold ETF I think most investors may want to at least consider right now.

Agnico Eagle (AEM)

One of the top gold miners I’m watching closely right now is Agnico Eagle (NYSE:AEM).

This Canada’based gold miner has seen incredible share price appreciation driven by rock-solid fundamentals. The company’s sector-leading asset quality, providing both high-grade production and plenty of room for production and volume growth over time, provide a number of different earnings and cash flow levers I expect the company’s management team will continue to utilize as the price of gold surges. 

Outperforming most of its peers on both growth and return metrics, I think the company’s expected EPS growth of 20% per year moving forward justifies the company’s current valuation at around 24-times earnings. 

With a small but meaningful dividend yield of 1%, and plenty of balance sheet capacity to either pay down debt, buy back more stock, or increase its dividend over time (I think a mix of all three is likely), this remains my top gold mining pick in the market right now. 

Franco-Nevada Gold (FNV)

For investors looking for an even safer way to play rising gold prices, but an option that provides some of the highest margins in this sector, Franco-Nevada Gold (NYSE:FNV) would be one of my top picks. 

Franco-Nevada operates as a royalty and streaming company in the gold mining sector. What this means is that Franco-Nevada will provide up-front financing to mining companies looking to expand production. In exchange for this capital, companies will pay Franco-Nevada some amount (either based in dollars or ounces of gold) over time, which has been a very lucrative model of late. 

With gross margins of around 87% and incredibly strong free cash flows, Franco-Nevada has plenty of cloud cover to continue ramping up its dividend over time, and buy-in back more shares. Analysts expect the company’s EPS to surge at a 30% rate in this high gold price environment. So, if you fancy yourself one of those gold bulls who think $10,000 per ounce is the next key level to be hit, then this is clearly a high-margin option to consider. 

With a current dividend yield of 0.8% and a higher multiple than these other two options, there’s more risk involved with this name for sure. But for those holding a bullish perspective on gold over the long-term, this has clearly been the best way to play the rising price of gold in recent years. One look at the stock chart above says more than I can about the sort of upside this company’s business model provides during bull market rallies in precious metals, like the one we’re witnessing right now.