If you’ve been thinking about how to turn a second Trump presidential term into a portfolio win, one approach that is gaining traction among some analysts is to bet on gold. Or even better, gold stocks.
One that stands out: Agnico Eagle Mines Ltd. AEM-T, the Toronto-based producer that is now more valuable than mighty Barrick Gold Corp. ABX-T, in terms of the total value of its outstanding shares.
Its share price has risen 36 per cent in New York (it also trades on the Toronto Stock Exchange) since the start of the year. The stock has outperformed Barrick and Newmont Corp. NGT-T by wide margins and trounced bullion as well, demonstrating its go-to status when gold prices are rising.
Even as gold hovers near record highs above US$2,400 an ounce, up 18 per cent since the start of the year, some observers expect that the conditions are in place for the rally to pick up.
Anita Soni, an analyst at CIBC Capital Markets, expects that the price of gold can rise to US$2,600 an ounce in 2025, potentially boosting miners’ profits.
“With what can only be described as a disastrous debate performance by Biden, the spectre (and spectacle) of a second Trump presidency looms on the horizon and could cause a parabolic shift in the gold price in 2025,” Ms. Soni said in a note this week.
Others share her enthusiasm for gold, if for different reasons.
As central banks cut their key interest rates, the opportunity cost of holding an asset that doesn’t pay dividends diminishes. As well, some central banks are actively building up their gold reserves as they diversify from U.S. Treasury bonds and the U.S. dollar, adding a key component to demand for gold.
“While central banks’ motivations for owning gold may vary, they tend to have one thing in common: the share of U.S. dollars in portfolios has been declining,” Michael Widmer, Bank of America’s commodity strategist, said in a June report.
He believes that US$3,000 an ounce is within reach over the next 12 months.
These bullish forecasts add lustre to a commodity that has already notched significant gains. The price of gold has drifted since May, though, as money flowing into popular bullion-backed gold exchange-traded funds has declined, raising questions about what – if anything – will provide the next oomph.
Will Mr. Trump fill that role?
If he emerges victorious in this year’s presidential election, he is widely expected to cut taxes, raise tariffs and curb the independence of the Federal Reserve. These goals can potentially buttress interest in gold, since they might stoke inflation, diminish the Fed’s response and drive the need for safe inflation-proof investments.
“We believe a Biden second term shouldn’t be a negative for gold prices. But if Trump is re-elected and follows through on his policy positions, the already impressive rally in gold prices likely continues into 2025,” Ms. Soni said in her note.
That’s good news for gold producers. For investors, though, it means betting on a sector that is heating up, and a candidate who is hardly a shoo-in just yet.
Agnico Eagle is also a pricey stock after gains this year stretched the company’s valuation. For example, the shares trade at 10.4-times reported cash flow per share over the past 12 months, which is well above Barrick’s six-times cash flow, according to S&P Global Market Intelligence.
Still, the stock remains compelling.
David Rosenberg, president of Rosenberg Research, estimates that stock prices within the broader sector imply the commodity trading between US$1,300 and US$1,600 an ounce, or well below the current price of gold.
“This further increases the risk/reward profile of the group,” Mr. Rosenberg said in a note this week.
More specific to Agnico Eagle, the company’s low-risk operations – it owns mines in Canada, Australia, Finland and Mexico – offers a special appeal when geopolitical risks are rising in parts of Africa and South America.
As well, Agnico Eagle has demonstrated a knack for generating cash. It sold its gold for an average price of US$2,062 an ounce in the first quarter, up 9 per cent from the same period last year. Yet, with gold production up 8.1 per cent and mining costs also higher, cash flow per share surged by 41 per cent.
Given the company’s impressive operational track record, Ms. Soni expects the shares can rally to US$101 within the next 12 months, implying a gain of 35 per cent from current levels.
The surprising turnaround in Mr. Trump’s political fortunes this year has many people worried about the potential impact his presidency could have on the economy, foreign relations and U.S. democracy. Gold stocks may offer a rare bright spot.