It is all but a given that the Federal Reserve will raise the federal funds rate by 25 basis points, or one-quarter of 1%. It is also thought that over the course of 2018, the Fed will raise it three more times, and some are now saying perhaps even four times.
The goal of the increases is to get rates back to more normal levels and to choke off any potential spike in inflation. With the economy finally perking up, and consumer confidence soaring, you can bet that the probable rate hikes for 2018 are in the cards.
One very interesting trend over the past few years is the price of gold spiking when the Federal Reserve raises rates. RBC analysts have spotted this activity and noted this in a new research report:
Following the Fed rate hikes in December 2015 and 2016, the gold price rallied 15% and 8%, respectively, over the subsequent three-month period. We have also seen a strengthening in gold price following the most recent Fed rate hikes in March and June this year by 3% and 5%, respectively, over the same period. Our RBC Economics team currently anticipates another Fed rate hike to be announced at the upcoming FOMC meeting on December 13, 2017, which in our view could present a buying opportunity for investors on any share price weakness.
RBC is one of the better Wall Street firms when it comes to covering precious metals, so we screened its coverage universe and found four stocks it rates at Buy that may be outstanding buys now.
This top company with a solid balance sheet makes sense for investors to consider. Goldcorp Inc. (NYSE: GG) engages in the acquisition, exploration, development and operation of precious metal properties in Canada, the United States, Mexico and Central and South America. It primarily explores for gold, silver, copper, lead and zinc deposits.
Goldcorp’s principal mining properties include the Red Lake, Éléonore, Porcupine and Musselwhite gold mines in Canada; the Peñasquito and Los Filos mines in Mexico; the Marlin property in Guatemala; the Cerro Negro and Alumbrera mines in Argentina; and the Pueblo Viejo mine in the Dominican Republic.
Some Wall Street analysts feel that the company deserves a premium valuation to its peers due to its excellent balance sheet, growth profile with lower cost new mines, longer average mine life and a solid dividend yield. Over the past few years, Goldcorp has been altering its mine plans, cutting spending and disposing assets in order to reduce costs and focus on the most profitable production.
Goldcorp reported earnings for the third quarter that were in line with the Wall Street consensus. The company maintained its 2017 operating guidance and highlighted solid progress at achieving its 20-20-20 strategy. Goldcorp also bumped up reserves 26% to 53.5 million ounces with increases from Century of 4.7 million ounces and Cerro Casale and Caspiche providing 13.3 million ounces.
Goldcorp shareholders are paid a small 0.61% dividend. The RBC price target for the shares is $17, and the Wall Street consensus target is $17.25. The shares closed Tuesday’s trading at $11.76 apiece.
More aggressive investors may want to consider this smaller cap company. Kinross Gold Corp. (NYSE: KGC) engages in the acquisition, exploration, development and production of gold properties. The company’s gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. It also produces and sells silver.
Kinross recently announced that it will proceed with the Tasiast Phase Two and Round Mountain Project W projects. At full production by 2020, CEO Paul Rollinson sees these two projects stabilizing the company’s gold equivalent output in the 2.5 million ounce range. Trading at a discount to the peer producers, some believe that this valuation gap could be closed due to these projects.
RBC has a $5.50 price objective on the stock. That compares to the posted consensus target of $5.31 a share. The stock closed most recently at $3.80 per share.