Part of the Stock Digest group of websites: Visit Tech Stock Digest  

4 Reasons to Own Gold Stocks

The price of gold has been feeling the pressure lately from a stronger U.S. dollar, which is at a four-month high, and rising Treasury yields, explains Frank Holmes, CEO of the top-ranked mutual fund firm US Global Investors and editor of Frank Talk.

Nevertheless, the yellow metal eked out a positive March quarter, returning close to 1.3 percent, while the S&P 500 Index posted its first negative quarter since 2015. This tells me the investment case in gold and gold mining stocks remains as strong as ever.

Below are four more reasons why I think you should consider adding gold stocks to your portfolio right now.

1. Gold mining stocks look inexpensive.

Billionaire investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Compared to the broader equities market, gold mining stocks, as measured by the NYSE Arca Gold Miners Index, look incredibly “marked down” right now. They’re far below the average gold miners-to-S&P 500 ratio of 0.7 for the nine-year period, and nearly as undervalued as they’ve ever been.

chart 1

I believe that for investors with a long-term horizon, this makes gold miners look especially attractive as we await valuations to revert their mean, or average. Hopefully this can be achieved without a significant decline in the S&P.

2. Rising inflation has historically lifted gold prices.

Inflation can be understood as the destruction of wealth. Every time consumer prices head higher, a dollar loses some of its value, whether in your pocket or your savings account. Inflation can also weigh on stock prices, as some investors anticipate it cutting into corporate earnings. They might therefore decide to move their money into other assets.

That includes gold, which has enjoyed a long history of being an attractive store of value during times of higher inflation.

After being mostly stagnant for several years, inflation looks as if it’s ready to stage a strong comeback, thanks to rising oil prices and new trade tariffs imposed by the Trump administration, among other factors.

But which measure of inflation is most accurate? The Federal Reserve prefers the consumer price index (CPI), but there are others, including the New York Fed’s Underlying Inflation Gauge (UIG) and ShadowStat’s Alternative CPI.

chart 2

From the chart above, we can surmise that inflation could be highly understated right now. According to the official CPI, prices rose 2.4 percent year-over-year in March. But if we use the Fed’s methodology from 1980, as ShadowStats does, it’s possible prices advanced more than 10 percent from a year ago.

Regardless of which measure you trust the most, it’s clear that inflation has been heating up at a faster pace—meaning it might be time for investors to consider adding to their gold exposure.

Click here to continue reading...

Subscribe to the RSD email list and get the latest resource stock activity directly to your inbox, for free.

MARKET SUMMARY

INDICES

Name Last Change
DOW 25822.30 0.25%
S&P 500 2753.17 0.75%
NASDAQ 7859.17 0.49%
TSX 16296.97 0.21%
TSX-V 691.96 0.00%

Resource Commodities

Name Last Change
Gold 1195.80 0.01%
Silver 14.79 0.20%
Copper 2.69 0.070
Platinum 795.50 0.13%
Oil 67.35 1.37%
Natural Gas 2.98 1.31%
Uranium 26.08 0.19%
Zinc 1.08 0.00%

@RSDigest ON TWITTER

Part of the Stock Digest family of websites
Small Cap Stock Digest