The price of gold has been steadily increasing for at least 12 months, during which the price per ounce has risen from $2000 to $2900. There are multiple factors behind the rise in gold prices, including trade wars, actual wars, and uncertainties in global leadership. Two different types of gold stocks, namely mining stocks and royalty stocks, may react differently to the sustained rise, stagnation, or decline in gold prices. Despite differing long-term prospects, the following two blue-chip stocks currently offer good growth opportunities.
Kinross Gold (KGC) ranks among the top ten gold mining companies globally. Last year, the company produced approximately 2.1 million ounces of gold equivalent and expects to produce at least 2 million ounces by 2027. However, a stable production outlook is just one of the company’s fundamental strengths. Kinross is also a highly diversified producer with operations in multiple countries. The company also possesses ample exploration and development resources.
The bull market in gold prices has been extremely favorable for the company’s stock performance. Over the past 12 months, Kinross Gold’s stock price has surged by more than 140%, and its valuation remains quite reasonable. However, the issue with Kinross Gold is its reliance on high gold prices. If gold enters a correction phase, the stock price could fall. Depending on market sentiment, the stock price decline may precede or accompany a drop in gold prices.
Royalty stocks like Franco-Nevada (TSX: FNV) may be more resistant to gold price adjustments but also have their drawbacks. When gold prices rise, their gains are not as dramatic as those of mining stocks. Over the past 12 months, the stock price of Franco-Nevada has increased by only about 40%, even less than the rise in gold prices during the same period. The advantage is that, in the long term, Franco-Nevada may be more stable and reliable than gold mining stocks, as evident from the stock performance over the past 15 years. Moreover, if gold prices fall, the decline in this stock may lag behind that of Kinross, and investor losses could be much smaller than those from direct investments in gold mining stocks.
If gold prices continue to rise, Kinross might be the better choice, but if there is a potential for gold prices to fall, Franco-Nevada would be a relatively safer option.
