The case for investing in gold remains strong: The EU sovereign-debt crisis continues to drag on, while the U.S. economic recovery remains anemic relative to most postwar economic cycles. Meanwhile, central banks purchased about 400 tons of gold last year and will likely add to their stockpiles in 2012.
In late August 2012, gold reached its most recent high of $1,889.70 per ounce. A sharp decline from this peak prompted some investors to question the sustainability of the bull market. But the consensus tends to forget that the rush to gold, which began in 2001, has endured its share of ups and downs along the way.
Given the structural challenges facing the major developed economies, investors should regard weakness in gold and other rare metals stocks as a buying opportunity. I expect the supply-demand balance for gold to tighten in 2012 and have tipped the yellow metal to top $2,000 per ounce this year.
Goldcorp (GG), which operates primarily in the Americas, remains my favorite large-cap gold producer. Management’s forecast calls for the company to grow its gold output to 2.6 million ounces and its silver output to 34 million ounces in 2012. Goldcorp also produces significant amounts of copper, lead and zinc. The firm boasts some of the lowest production costs among its peers.
The company expects gold production to grow to 4.2 million ounces — a 70 percent increase — over the next five years. Goldcorp recently made a final investment decision on the El Morro gold and copper project in northern Chile, a $3.9 billion endeavor that should produce its first gold in late 2017. Management estimates that the mine’s production will average 210,000 ounces of gold and 200 million pounds of copper annually during its 17-year life span.
The stock trades at a premium to its peers, which is justified by the company’s high-quality assets and potential output growth. Rising production costs should be more than offset by higher gold prices.
For more tips and analysis, check out my free report on the top gold stocks to own now.