It’s Time To Buy Gold Stocks

Gold Prices Hit New Multi-Year High

If you are watching gold prices and wondering if its a good time to buy gold stocks you’d be right. The gold price was one of the best-performing assets in 2019 and the outlook for 2020 is bullish. The World Gold Council Outlook 2020 report issued in January points out several factors that will continue to drive gold prices higher this year and maybe next.

According to the council, economic conditions put in place over the last few years are the most supportive of prices. What they’re talking about are the easy-money low-interest-rate-policies and other forms of economic stimulus used to prop up global economies. With record amounts of cash in the system, it is curious gold isn't already trading at new all-time highs.

The council also noted a trend among central bankers to shore up their gold reserves and record inflows of cash into ETF’s that must hold the metal. Both sources of demand are keeping supplies tight while providing an underlying bid for price action.

The combination of rising prices and low costs is a recipe for gold-miner profits we’ve not seen in some time. Gold is breaking above a major point of resistance and moving up to new multi-year highs while oil, a gold miner’s biggest expense, languishes near the bottom of a ten-year trading range. What could be better?

The Gold Miners ETF Is On The Verge Of Reversal

The Gold Miner’s ETF (GDX) has been bottoming for years, seven years in fact, and now on the point of reversal. News from a host of miners has the ETF moving higher and the indications are bullish. The only thing standing in the way of a major rally now is a key point of resistance.

Resistance is near the 7-year high and, if surpassed, will confirm a Head & Shoulders pattern of generational proportion. If, when, resistance at the neckline is broken this ETF could easily see a 50% price increase over the next year with the possibility of 100% gains within three. And that’s without the dividend, small though it is, about 0.70% at today’s prices.

Newmont Gold Is The Best In Breed

Newmont Corporation (NEM) just released an earnings report that proves once again it is the best-of-breed for this sector. Basically, the company is well-positioned with a fortress balance and industry-leading mineral reserves that promise sustained operations for well over a decade.

For the 4^th quarter, the company reports a 44.9% increase in revenue that was driven by production gains and rising gold prices. Production is up 27% from the year-ago period, in part because of the acquisition of Goldcorp and partly due to new projects, aiding the 20% increase in realized prices. With prices for gold up another 5%+ since the end of the quarter, the 1^st quarter 2020 report should show additional improvement in profitability.

“In 2019, Newmont generated $1.4 billion in free cash flow from the gold industry’s best portfolio of assets and we continued to deliver on our promises by completing four projects on four continents within budget,” said Tom Palmer, President, and Chief Executive Officer. “We returned $1.4 billion to shareholders through dividends and share repurchases and as we enter our centenary year, Newmont is well positioned with the industry’s largest reserve base strategically located in top-tier jurisdictions that enable us to sustain production and generate robust cash flow across price cycles.”

Newmont Gold Is A Cash-Flow Powerhouse And Breaking Out To New Highs

Newmont's cash flow increased by 74% for the quarter due to the combination of factors described above.  The increased cash-flow is expected to remain stable for the foreseeable future because production is expected to remain stable with little spending other than sustaining costs. This is important to note because the company is considering a substantial dividend increase, about 375% to $1.00 per share.

Newmont Corporation shares were already moving higher, the report from Barrick Gold (GOLD) last week is the reason, but they got a real boost from today’s news. The stock jumped more than 6% in intraday action and broke out to a new 7-year high. With prices now moving firmly into fresh territory the next targets are near $57.50 and $65.00, or a range of +17% to +32% over the next 12 months.