Commodities & Metals

Gold and Silver Investors Have Fewer and Fewer Choices

If there was ever a year in which uncertainty was the dominant force, 2020 would have to be the poster child. While the reasons to own gold are varying and numerous, gold has been the safety net for centuries. The reasons people buy silver are even more numerous, but silver’s actual of tracking gold and its discount (gold-to-silver ratio) has a mixed history.

On top of tracking gold and silver prices, 24/7 Wall St. tracks the charts and fundamentals of the companies that benefit from the moves in gold. These are generally the miners, but in reality, every company has its own nuances about how its role plays into gold and silver.

Gold has screamed higher in 2020 and has even challenged the $2,000 per ounce mark, and silver has briefly gone above $25 per ounce. Silver has managed to have its own crazy moves. As of Tuesday, August 4, 2020, gold’s gain of over 29% year to date was still dwarfed by a 36% rise in silver.

Some strategists are calling for much higher commodity prices ahead, and the zero interest rate policy of the U.S. Federal Reserve now appears to be quasi-permanent, while Europe and Japan still have negative interest rates. There also has been the equivalent of billions of dollars that have been digitally created to stimulate the economy, with an expectation that even more stimulus will be required until there are vaccines and strong treatments for COVID-19.

Most gold miners are enjoying the high gold prices during the pandemic, but last week showed that even high gold prices can see times when it’s simply more expensive to mine for gold. The good news is that Wall Street deems some of the gold and silver mining stocks to be undervalued. The bad news is that most of the companies are considered to be above their fair market value via the Refinitiv consensus analyst target price.

An issue that gold and silver investors need to consider is that it is getting harder to find bargains in precious metals. The high prices have allowed the underlying stocks to rise above their fair market values, or at least be close to those values. Many of the companies that screen cheaply may have some other underlying issues. Some gold and silver plays miners still offer implied upside at current prices, and these are the ones as of August 4, 2020.

Newmont Corp. (NYSE: NEM) is now the largest gold miner by market capitalization after its Goldcorp merger. It has a vast project in Colorado that will offer strong reserves until 2045 or later. In late July, Deutsche Bank reiterated its Buy rating while raising its target to $74 from $70, and Raymond James more recently raised its target price to $80 from $78.

Jim Cramer hosted an interview with Newmont’s CEO on Mad Money a month ago, and the CEO discussed how much higher gold prices will help its cash flow and what is available for a higher dividend payment ahead. Newmont had been basing its future forecasts on $1,100 gold, so there is a lot of upside with much higher gold prices, if the pandemic costs are not perpetual. Newmont stock was last seen at $68.75, but Refinitiv’s consensus target price is now up at almost $76.

Barrick Gold Corp. (NYSE: GOLD) is still a close second place when it comes to market capitalization of gold miners. In July, Deutsche Bank reiterated its Buy rating and raised its target to $35 from $34. Raymond James reiterated its Outperform rating and a $32 price target. Shares of Barrick traded at $28.75, while the consensus target price is now closer to $31.50.