While the Fed paused interest rate hikes this month, it signaled more increases likely this year to fight still-high inflation. Considering the likelihood of further rate hikes and a grim economic forecast, investors could keep an eye on quality gold stocks Kinross Gold Corporation (KGC), B2Gold Corp. (BTG), and Dundee Precious Metals Inc. (DPMLF) to protect their portfolios against economic turmoil and garner stable returns.
Let’s discuss this in detail.
The Consumer Price Index (CPI) rose by just 0.1% in May, lowering the annual rate to 4% from 4.9% in April. However, core inflation, which provides a better measure of overall inflation, increased by 0.4% on a monthly basis and remained 5.3% higher than the previous year.
Although price increases have moderated, inflation is still well above the Federal Reserve’s target of 2%. Even though the Fed has decided to hold interest rates steady for June, it indicated that further two quarter-point-increases are forthcoming this year. The Fed’s borrowing rate currently hovers between 5% and 5.25%.
Furthermore, the World Bank predicts that elevated rates and lingering effects of this year’s banking crisis will significantly slow down economic growth in major global economies. The Bank forecasts a meager 1.1% growth for the United States, and the nation’s GDP growth is expected to decelerate further in 2024 to 0.8% due to the higher rates.
Amid economic downturns, investors could turn to stable investments such as gold for its hedging properties. Gold is renowned as a “safe-haven” asset and maintains its value and liquidity during uncertain periods. With the prospect of additional rate hikes later this year, investors might increase their investment in gold to hedge against inflation, potentially driving up its price.
Gold has outperformed global equities and fixed-income indices over the past 12 months. Gold prices have consistently remained high this year, peaking at nearly $2,048 in April 2023. While the price of gold has fluctuated in the last few weeks, it is still around $1,930 per ounce. Experts believe prices will rise much further this year and into the following.
Another significant trend to monitor is the continuous gold purchases by central banks. In 2022, central banks made the highest-ever net purchases of gold. Data from the World Gold Council reveals that central banks acquired a total of 1,079 metric tons for their official reserves, marking the 13th consecutive year of net buying.
The momentum has continued into the first quarter of 2023, with central banks purchasing 228 metric tons. The increase in buying by central banks might contribute to the recent rally in gold prices.
The U.S. Global GO GOLD and Precious Metal Miners ETF’s (GOAU) 34.9% returns over the past nine months illustrate investors’ interest in gold stocks.
Let’s now explore what makes KGC, BTG, and DPMLF worthwhile investments.
Kinross Gold Corporation (KGC)
Headquartered in Toronto, Canada, KGC acquires, explores, and develops gold properties. The company’s operations encompass the extraction and processing of gold-containing ores, the reclamation of gold mining properties, and the production and sale of silver.
On February 13, KGC declared an initial mineral resource estimate for its Great Bear project in Ontario, Canada. Over 550 kilometers of drilling have been completed, affirming KGC's belief in the LP Fault zone’s potential for a durable, high-grade mine with both open-pit and underground operations.
Within a year of acquiring the property, the company has confirmed its vision for a world-class asset, ensuring substantial benefits for its shareholders. The initial mineral resource estimate and the consistent presence of elevated grades and widths at depth have reinforced KGC’s ambition for a top-notch open-pit and substantial underground mine.
KGC’s metal sales for the first quarter (ended March 31, 2023) increased 32.6% year-over-year to $929.30 million. Its gross profit grew 36.3% from the year-ago value to $233.50 million. Adjusted net earnings from continuing operations attributable to common shareholders rose 27.3% year-over-year to $87.60 million.
In addition, the company’s adjusted net earnings per share from continuing operations came in at $0.07, an increase of 40% year-over-year.
Analysts expect KGC’s revenue for the fiscal year (ending December 2023) to increase 16.7% year-over-year to $4.03 billion. The consensus EPS estimate of $0.36 for the ongoing year reflects a 62.8% growth year-over-year. Shares of KGC have gained 13.6% over the past six months to close the last trading session at $4.85.
KGC’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
KGC has an A grade for Growth and a B for Value. It is ranked #6 in the 38-stock Miners - Gold industry.
In addition to the POWR Ratings I’ve just highlighted, you can see KGC’s ratings for Momentum, Quality, Stability, and Sentiment here.
B2Gold Corp. (BTG)
Headquartered in Vancouver, Canada, BTG operates three gold mines, Fekola (Mali), Masbate (Philippines), and Otjikoto (Namibia). It holds a 25% interest in Calibre Mining Corp. and a 19% interest in BeMetals Corp. In addition, the company has evaluation and exploration assets in Mali, Uzbekistan, and Finland.
On April 27, BTG reported promising outcomes from its exploration drilling in the Fekola Regional area, Mali. During the first quarter of 2023, the company allocated $15 million to advance Fekola Regional’s saprolite mining, encompassing road construction, mine infrastructure, and mining equipment.
Preliminary findings from an optimization study on the Fekola Complex and the exploration drilling results from 2022 reveal a substantial potential to augment gold production and optimize resource utilization. This presents a significant opportunity for BTG to enhance its gold output and maximize the value derived from its resources.
Also, on April 19, BTG reported successfully acquiring Sabina Gold & Silver Corp, gaining complete ownership of the Back River Gold District in Canada. The company intends to strategically benefit from this high-quality gold project in a top-tier mining jurisdiction.
For the first quarter that ended March 31, 2023, BTG’s gold revenue increased 29.5% year-over-year to $473.56 million, and its gross profit grew 53% from the year-ago value to $213.63 million. Additionally, the company’s adjusted net income and EPS rose 62.6% and 66.7% year-over-year to $105.86 million and $0.10, respectively.
The consensus revenue estimate of $1.92 billion for the fiscal year ending December 2023 reflects a 10.7% year-over-year improvement. Likewise, the consensus EPS estimate of $0.32 for the current year indicates a 27.1% rise year-over-year. The stock has gained 2.8% over the past six months to close the last trading session at $3.66.
BTG’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BTG has a B grade for Growth, Quality, and Value. It is ranked #5 out of 38 stocks within the Miners – Gold industry.
Click here to access additional BTG ratings (Momentum, Stability, and Sentiment).
Dundee Precious Metals Inc. (DPMLF)
DPMLF, based in Toronto, Canada, acquires mineral properties and conducts precious metal exploration, development, mining, and processing. The company owns and operates a gold, copper, and silver mine near Sofia, Bulgaria; a gold mine near Krumovgrad, Bulgaria; and a custom smelter in Tsumeb, Namibia.
On January 12, DPMLF announced an updated Mineral Resource and Mineral Reserve Estimate for Bulgaria’s Ada Tepe gold mine. The revised plan extends production until 2026, with an additional 66,000 ounces of gold recovered and a higher average gold grade of 5.19 g/t, improving DPMLF’s three-year production outlook. It reflects the company’s continued progress in its gold mining operation.
DPMLF’s revenue for the first quarter (ended March 31, 2023) increased 1.3% year-over-year to $155.83 million. Its adjusted net earnings and adjusted EPS grew 24.6% and 26.3% year-over-year to $46.14 million and $0.24, respectively. Furthermore, the company’s free cash flow rose 24.2% from the prior year’s period to $65.03 million.
Analysts expect DPMLF’s revenue to grow 39.1% year-over-year to $187.03 million for the second quarter ending June 2023. The company’s revenue for the third quarter (ending September 2023) is expected to come in at $190.50 million, up 48.1% from the prior year’s quarter.
Over the past six months, the stock has gained 48.6% to close the last trading session at $6.95.
DPMLF’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
DPMLF has an A grade for Stability and Quality and a B for Value and Growth. It has ranked #2 out of 38 stocks within the same industry.
Click here to access additional DPMLF ratings for Momentum and Sentiment.
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KGC shares were trading at $4.88 per share on Thursday afternoon, up $0.03 (+0.62%). Year-to-date, KGC has gained 21.87%, versus a 15.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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