posted on 18 March 2017
by Staff Reports Money Morning, Money Morning
Money Morning Article of the Week
Although prices have dipped 2.8% to $1,232 this month, investing in gold is still one of the best profit strategies this year. That's because we expect gold prices to rise 13.6% to $1,400 by the end of 2017.
You could buy some physical gold to take advantage of these gains, but there is a much better way to invest in gold and reap much larger returns. We're talking about gold mining stocks, and we found two that could surge 50.1% and 81.2% by next March.
Here's why Money Morning Resource Specialist Peter Krauth says you should start investing in gold stocks in 2017…
Why Investing in Gold Stocks Will Hand You Profits in 2017
Krauth believes gold prices and gold stocks will rise this year thanks to one factor: rising inflation.
Right now, the year-over-year inflation rate is at a five-year high of 2.5% as of January. This rate is going to continue upward as the stock market keeps hitting record-breaking highs and as yields on 10-year Treasury bonds increase.
Inflation generally has an inverse relationship with a strong stock market. This means that a stock market rally causes the purchasing power of the U.S. dollar to plummet, which isn't good for the overall economy.
We're also seeing higher 10-year Treasury bond yields right now, which is another sign of inflation. Since Jan. 1, the yield has climbed from 2.45% to 2.62% - the highest since September 2014.
The U.S. Federal Reserve is tasked with monitoring inflation levels by adjusting interest rates as necessary. The first such rate hike took place on Dec. 14, 2016, and the Fed just raised rates again yesterday (Wednesday, March 15). That puts the federal funds rate at a range of 0.75% to 1%.
Gold is a popular choice as a safe-haven investment in uncertain economic times. When investors hear the word "inflation," they equate it with danger and seek out the safer investments like gold. This is going to boost demand, which will send the gold price and gold stocks surging.
That's why Krauth predicts the price of gold will hit $1,400 by the end of the year. Many analysts from banks like Credit Suisse Group AG (NYSE ADR: CS) even see gold going as high as $1,500.
Since gold companies, particularly gold miners, rely on high gold prices to make money, these gains will hit their bottom line and be great news for stockholders.
Here are the two best gold stocks to buy in 2017…
Buy These Gold Mining Stocks for 50.1% and 81.2% Returns This Year
The important thing to remember about gold mining companies is that their profitability depends on both the efficiency of their operations and a high gold price. These companies track what is called their all-in sustaining costs (AISC), which measures how much it costs them to produce a single ounce of gold.
For example, if it costs a company $900 to produce one ounce and the price of gold is $1,200, that company made a $300 (or 25%) profit. If the AISC is lower and gold prices are higher, profits go up.
One gold mining stock to consider is Barrick Gold Corp. (NYSE: ABX). Barrick operates gold mines on five continents and has a $20.5 billion market cap. It's the largest producer of gold in the world and has one of the lowest AISCs in the industry - $760 per ounce.
If gold prices hit $1,400 by the end of 2017, the company could be looking at profit margins near 50%.
Shares of ABX last closed at $19.02 and are up 19% year to date. Analysts give the Barrick stock price a high one-year target of $28.54. That means if you buy in now, you could see a 50.1% return in 12 months or less.
Our second gold stock pick this year is Goldcorp Inc. (NYSE: GG).
While Goldcorp is the world's fourth-largest gold producer, it is poised for significant growth considering how well-run and organized this mining company has proven to be.
And Money Morning Executive Editor Bill Patalon continues to recommend GG stock because of the firm's novel - and successful - crowdsourcing experiment.
Over 15 years ago, the company opened up its geological databases to the public online and asked for input on possible mining sites. The response was overwhelming, and out of the 110 sites chosen, 88 had gold deposits.
Today, you can buy GG stock for $15.45 per share. Analysts surveyed by Yahoo Finance give it a high one-year price target of $28 per share. That's a stunning 81.2% gain from the last closing price.
If you're interested in investing in gold this year, there's no better way to do it than with these gold stocks.
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