The S&P/TSX Composite Index has been substantially volatile in the last few months. The wild movement in the Canadian benchmark index is likely due to rising investor fears of a recession hitting the market soon. Inflation rates are alarmingly high in Canada and the U.S.
The U.S. Federal Reserve and the Bank of Canada (BoC) have enacted several interest rate hikes to slow down economic activity and bring inflation under control.
Increasing interest rates is an effective method to cool down inflation. Unfortunately, it may take much longer for the higher interest rates to have a tangible impact on the inflationary environment. The longer inflation persists, the likelier it is for a recession to devastate the economy.
Gold prices can soar if a recession hits, because investors tend to flee riskier asset classes and allocate more of their capital to safe-haven assets like the rare yellow metal. Higher gold prices typically make companies with gold-related operations more profitable because of better margins. Investing in fundamentally solid gold stocks can provide investors some relief during such market environments.
Today, I will discuss two gold stocks you can invest in to beat the impact of inflation on your investment portfolio.
Barrick Gold (TSX:ABX)(NYSE:GOLD) is a $37.52 billion market capitalization Canadian gold and copper mining company with over a dozen active mining operations worldwide. Headquartered in Toronto, Barrick Gold is globally one of the largest gold-producing companies.
Rising interest rates have strengthened the dollar and weakened gold prices for now. The pullback in gold prices has seen Barrick Gold’s share prices decline, opening up an opportunity to add it to your portfolio for a discount.
As of this writing, Barrick Gold stock trades for $21.11 per share and trades for an almost 37% discount from its 52-week high. Barrick Gold has been putting up a strong operational performance this year, and it looks set to achieve its full-year production guidance. While lower gold prices might trim some of its profitability right now, it could be a good asset to own during a recession.
OceanaGold (TSX:OGC) is a $1.48 billion market capitalization gold mining company. Headquartered in Melbourne, OceanaGold stock is much smaller than its Toronto-based counterpart. However, it is not a gold stock to shrug aside. The company beat analyst earnings estimates for the last two quarters, reflecting its strong operational performance.
Despite beating earnings estimates, OceanaGold stock has gone through a pullback in recent weeks. As of this writing, it trades for $2.09 per share, down by 38.7% from its 52-week high. As with most of its peers, falling gold prices have led to a decline in its share prices on the TSX.
July saw the company announce that it is maintaining its gold production guidance range and increasing its copper production guidance from 12,000 tons to 14,000 tons.
Rising gold prices could lead to a sharp rally for OceanaGold stock in the coming months, making it an attractive investment to consider adding to your portfolio.
Gold prices tend to move opposite to the broader market during market downturns, and that’s why many people consider gold a viable hedge against inflation. Investing directly in gold bullion may be a good way to protect your investment capital from recessionary environments. Investing in gold stocks may be a better alternative to buying gold.
Investing in gold-producing companies gives you indirect exposure to gold’s performance while keeping your investment capital liquid. It may be easier to reallocate your funds to other assets once markets stabilize. You can simply sell your stake in gold stocks and allocate your capital to other TSX stocks once the dust settles instead of going through a long process to purchase and sell gold bullion.
If you are interested in investing in gold stocks instead of gold bullion in the face of inflation and recession, Barrick Gold stock and OceanaGold stock can be excellent bets to consider.