Are Gold Stocks a Hedge Against Falling Share Prices?

Companies involving the shiny metal can be part of a value portfolio 

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Jun 30, 2022
Summary
  • Gold can be a hedge for investors, and so can gold mining stocks.
  • Gold mining stocks may be bargains right now.
  • Other hedges may perform better in 2022.
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During periods of volatility and dropping share prices, gold investing tends to grow in popularity as a hedge.

Historically, the shiny metal tends to do well just as stocks fall, which has made it a way some investors cushion the decline in a bear market. That might pique your interest in gold-related stocks. These are in companies that mine gold, which could stand to be more profitable if the price of the commodity rises.

Gold stocks have underperformed for the past year, which means they may be at their bottom.

Gold mining stocks are easily found on trading platforms, but not all gold stocks are a good fit for a value portfolio. As you would with any stock purchase, consider whether the stock is from a profitable company and how it will help you reach your personal investing goals.

Other hedges during down markets such as energy and consumer staples companies may be safer choices for value investors looking to invest defensively in 2022.

VanEck Gold Miners ETF (

GDX, Financial)

This exchange-traded fund of gold stocks, with holdings including Newmont (

NEM, Financial), Barrick Gold Corp. (GOLD, Financial) and Franco-Nevada Corp. (FNV, Financial), is down 18% over the past year and is priced slightly over its 52-week low of $27.32. ETFs are a straightforward way to gain exposure to a variety of gold mining companies. The ETF has a dividend yield of 1.31%. Its price-earnings ratio is 18.68.

VanEck Junior Gold Miners ETF (

GDXJ, Financial)

The VanEck Junior Gold Miners ETF tracks a market cap-weighted index of small-cap gold and silver mining companies such as Yamana Gold, Kinross Gold Corp. (

KGC, Financial) and Pan American Silver (PAAS, Financial). Like VanEck Gold Miners, this ETF has been down over the past year, dropping 30.12%. Further, it has a healthy dividend yield of 2.51% and a price-earnings ratio of 15.61.

Sibanye-Stillwater Ltd. (

SBSW, Financial)

This South African company includes gold mining in South Africa, platinum mining in the United States, South Africa and Zimbabwe and copper, gold and platinum exploration. Rated as a buy, Sibanye-Stillwater has a price-earnings ratio of 3.35.

Equinox Gold Corp. (

EQX, Financial)

Equinox is a Canadian mining company with eight mines throughout the Americas. On target with its first-quarter financials this year, the company beat its earnings estimate in the fourth quarter of 2021. Its price-earnings ratio is 3.46.

Yamana Gold Inc. (

AUY, Financial)

Most analysts say Yamana Gold is a buy, but it has a price-earnings ratio of 30.87 – that is 10 times higher than some other gold mining stocks, meaning it could be overvalued. The company has a dividend yield of 2.41%.

El Dorado Gold Corp. (

EGO, Financial)

A Canadian mid-tier gold mining company, El Dorado Gold has projects in Canada, Turkey, Romania and Serbia. It has been locked in a dispute with the Greek government over the Skouries project, but bulls predict the company will prevail. Since El Dorado is not showing a price-earnings ratio, though, it may not be a good choice for profit-focused value investors.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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