Stocks to Take Advantage of Rising Gold Prices

Key Points

• Gold has continued to set new all-time highs in the second half of 2024, reaching almost $2,600 as of mid-September on demand from emerging markets and investor hesitation about interest rates, among other factors.
• Freeport-McMoRan and Newmont Gold are two popular choices that provide indirect exposure to gold while mitigating risk through operations focused on other commodities as well.
• It's important to keep in mind that gold prices could plunge at any moment; due to the close link between mining firms and commodity prices, this phenomenon would likely spell doom for gold miners.

Investors have flocked to safe haven precious metals including gold and silver in recent months, helping to drive the price of each of these metals up by about a third in the last year. Gold in particular continues to hit new all-time highs and trades close to $2,600 per ounce as of mid-September.

Emerging market central banks have stocked up on gold while the U.S. dollar has weakened and investors around the world build up expectations that the Federal Reserve will lower interest rates. All of these factors may have contributed to the metal's surging price.

For those optimistic that gold will continue to reach new highs in the near-term, there are multiple ways to gain both direct and indirect exposure to the precious metal. Besides holding gold bullion, investors can also target a gold or precious metals ETF like the SPDR Gold Shares ETF NYSE: GOLD, which is also up by more than 32% in the last year. Another option is to target gold stocks—companies that are responsible for the exploration, mining, and production of gold.

FCX: Diversified Holdings, Strong Financial Foundation

Vertically integrated mining outfit Freeport-McMoRan Inc. NYSE: FCX produces gold, copper, and molybdenum. Because its operations extend into smelting and refining, Freeport-McMoRan can conduct business independently from other mining industry partners. It also has a geographically diversified portfolio of mining properties across North and South America and elsewhere in the world, providing a way of mitigating risk associated with negative results of interrupting weather or environmental factors at any of its mines.

Freeport-McMoRan's recent quarterly performance has been strong. The company most recently topped analyst predictions by noting EPS of $0.46. Revenue has also climbed by almost 16% year-over-year. Analysts project that this trend will continue as the company could report upcoming earnings growth of nearly 40%.

Its copper projects bolster the firm's significant gold enterprises. Copper is a key component in emerging green technologies, a fact that could drive copper prices upward independent of the broader movement toward gold as a safe haven. This may be a contributing factor when analysts set an average price target for Freeport-McMoRan of $53.07, a full 23% higher than current levels.

On the other hand, investors should watch out for volatility in FCX shares. The share price is up 7.3% in the last year, but it is also down about 20% from its highs in May of this year.

NEM: Stock Momentum, Size, and Growth Prospects

Among U.S.-based gold miners, Newmont Corp. NYSE: NEM offers an attractive degree of stability. The firm has a terrific 31% stock improvement in the last year and is currently valued at more than $61 billion, making it the largest publicly traded gold mining company by a wide margin.

Despite its size, analysts continue to see room for Newmont to grow. EPS has grown consistently in recent history and the company is expected to post future earnings growth of almost 21%, continuing this trend. With a forward P/E ratio of 18.8, Newmont may be undervalued compared with some of its large mining peers.

Newmont also offers a comparably attractive dividend yield of 1.88% as its annualized three-year dividend growth has topped 15%. However, the company has a dividend payout ratio of -37.5% due to its having paid out a dividend while taking losses. This may give investors pause, particularly if Newmont is not able to return to profitability in an upcoming quarter. Newmont's announcement earlier this month that it would divest some of its Australian operations for up to $475 million will likely significantly impact this area.

Mining Stocks: Opportunity and Risk

Targeting mining stocks that are closely tied to the price of gold is inherently risky given the commodity's tendency sometimes to behave atypically. Despite their status as safe havens, precious metals can be volatile as well. Both Freeport-McMoRan and Newmont target metals besides gold, which helps to insulate them from a rapid reversal in gold prices to some degree. At the same time, global uncertainty, inflation, and interest rate changes may continue to create favorable conditions for gold, which is liable to send these and other mining outfits higher.