The recent Federal Reserve rate cut of 50 basis points has sparked a surge in gold prices. Gold, which reached a record high of $2,635.29 per ounce on Monday, has risen nearly 29% year-to-date. This surge has significantly boosted the appeal of gold as an attractive asset for investors.
Investors often turn to gold during uncertain times, as it is a safe-haven asset. The inverted yield curve, where short-term bond yields are higher than long-term yields, has added to recession fears, pushing more investors toward gold. In volatile markets, gold offers a way to diversify portfolios, protect against inflation, and hedge against broader market risks.
To play this rally, investors can look at gold ETFs such as SPDR Gold Shares (GLD) and VanEck Gold Miners ETF (GDX), which provide exposure to gold prices and gold mining companies, respectively. Additionally, stocks like Newmont Corporation (NEM) and Franco-Nevada Corporation (FNV) are well-positioned to benefit from gold’s continued rise, making them solid options for those looking to tap into the ongoing gold rush.
ETFs to Buy:
SPDR Gold Shares (GLD)
GLD is a popular exchange-traded fund (ETF) that aims to reflect the performance of the gold bullion price before fees and expenses, offering investors a way to track the value of gold without physically holding it. Managed by World Gold Trust Services, LLC, GLD invests primarily in gold, making it a convenient and efficient vehicle for those seeking exposure to the commodity market. It can be used as a short-term position to hedge against equity market volatility and inflation.
As of September 24, 2024, the fund had assets under management (AUM) of $74.32 billion and an NAV of $243.58. GLD has an expense ratio of 0.40%, which is lower than the category average of 0.48%. Its fund inflows came in at $4 billion over the past three months and $759.19 million over the past year. Also, the ETF has a beta of 0.11, indicating comparative stability than the broader market.
In terms of price performance, the ETF has surged nearly 38% over the past year and more than 28% year-to-date.
VanEck Gold Miners ETF (GDX)
GDX seeks to replicate the performance of the NYSE Arca Gold Miners index before fees and expenses. The non-diversified fund usually invests 80% of its total assets in depositary receipts and common stocks of the gold mining industry, thereby delivering an ‘indirect’ exposure to gold prices.
With $15.95 billion of total net assets, GDX’s top holdings include Newmont Corporation (NEM) with a 15.25% weighting, followed by Agnico Eagle Mines Limited (AEM) at 10.05%, and Barrick Gold Corporation (GOLD) and Wheaton Precious Metals Corp. (WPM), at 8.69% and 6.89%, respectively. It currently has 59 holdings in total.
The fund pays an annual dividend of $0.50, translating to a 1.21% yield at the prevailing price level. Its dividend payouts have grown at an impressive CAGR of 38.1% over the past three years and 36.6% CAGR over the past five years. Also, the fund’s four-year average yield is 1.32%.
Over the past five days, GDX’s fund inflows were $104.35 million and $438.16 million over the past month. In addition, its 0.51% expense ratio compares to the 0.48% category average. The ETF’s NAV was $41.24 as of September 24, 2024. Moreover, it has gained more than 43% over the past year and nearly 34% year-to-date. Also, it has a beta of 0.99.
Stocks to Buy:
Newmont Corporation (NEM)
Newmont is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations.
NEM’s sales increased 64.1% year-over-year to $4.40 billion for the fiscal second quarter that ended June 30, 2024. Its net cash from operating activities rose 112.5% from the prior-year quarter to $1.39 billion. NEM’s adjusted net income came in at $834 million and $0.72 per share, representing 213.5% and 118.2% year-over-year improvements. Also, its adjusted EBITDA stood at $1.97 billion, up 116% year-over-year.
During the quarter, NEM produced 1.61 million attributable ounces of gold and 477 thousand gold equivalent ounces (GEOs) from copper, silver, lead, and zinc. This growth was largely driven by the production of 1.31 million gold ounces from Newmont’s Tier 1 Portfolio.
Analysts expect NEM’s revenue for the third quarter (ending September 2024) to increase 86.2% year-over-year to $4.64 billion, while its EPS is expected to improve 121.9% from the year-ago value to $0.80 in the same period. In addition, it topped the EPS and revenue estimates in three of the trailing four quarters, which is impressive.
NEM’s stock is already up more than 65% over the past six months and has returned nearly 35% year-to-date.
Franco-Nevada Corporation (FNV)
Headquartered in Toronto, Canada, Franco-Nevada operates as a gold-focused royalty and streaming company with a presence in South America, Central America, Mexico, the United States, Canada, and internationally. Operating through the Mining and Energy segments, it manages its portfolio primarily focusing on precious metals, including gold, silver, and platinum group metals.
On August 13, the company declared a quarterly dividend of $0.36 per share payable to its shareholders on September 26, 2024. With a four-year average dividend yield of 0.93% and the current dividend of $1.44 translating to a 1.12% yield, the company continues to provide consistent returns to its investors. Also, it has a payout ratio of 42.2%.
During the fiscal second quarter, which ended June 30, 2024, FNV reported total revenues of $260.10 million and a gross profit of $178.10 million. The company achieved an adjusted EBITDA of $221.90 million, with a margin of 85.3%, compared to an adjusted EBITDA margin of 83.5% in the prior-year quarter. FNV’s adjusted net income came in at $144.90 million and $0.75 per share in the same period. Also, its cash and cash equivalents at the end of the period stood at $1.44 billion, up 11.1% year-over-year.
Street expects FNV’s revenue and EPS to reach $1.13 billion and $3.32, respectively, in the current year ending December 31, 2024. For the fiscal year 2025, its revenue is forecasted to register a year-over-year growth of 13.7%, reaching $1.29 billion. Also, its EPS is expected to come in at $3.87, up 16.3% from the prior year.
The company’s strong growth outlook is driven by mine expansions and new mine starts, with expectations of up to nine new mines contributing from 2024 to 2028. FNV also holds significant long-term optionality in gold, copper, and nickel, with exposure to approximately 66,800 square kilometers of mineral-rich territory.
Moreover, FNV’s shares have gained more than 8% over the past three months and nearly 16% year-to-date.
Bottom Line
The yellow metal’s long-term prospects appear bright as the gold market is expected to rise to 6.32 kilotons by 2029, reflecting a CAGR of 7.4%. Thus, one can capitalize on the surge without holding it physically through gold stocks (such as NEM and FNV) or convenient gold ETFs like GLD and GDX.
