Shares of many gold producers have traded higher this week on heightened U.S.-China trade tensions.
Precious metals and mining companies are considered safe-haven assets, which are typically used as protection against volatility during periods of increased uncertainty.
The VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund, which is a benchmark for the industry, gained 5.7% over the last four days.
The rally is expected to continue.
George Milling-Stanley, chief gold strategist at State Street Global Advisors, told Kitco.com on Tuesday that speculative money flowing into the market will drive gold prices markedly higher from present levels, pushing share prices up.
In order to benefit from the gold bull market, investors may want to consider buying shares of Novagold Resources Inc. (NG, Financial) as sell-side analysts on Wall Street recommend the stock and set an average target price of $8.53, reflecting 9% upside from Wednesday’s closing price of $7.83.
The stock has outperformed the VanEck Vectors Gold Miners ETF by 53% so far this year. Over the same span, the bullion rose 15.7% to close at $1,537.15 per troy ounce on Wednesday.
Novagold is also suitable for longer-term investment horizons as the company is working toward its goal of becoming a well-known gold producer, offering an excellent opportunity to investors who are seeking exposure to the precious metal. The company also explores and develops mineral properties.
The main asset of the Canadian miner is a 50% interest stake in the Donlin Gold project in Alaska. Donlin Gold LLC, a limited liability company, is the owner and the operator of the mineral project. Barrick Gold Corp. (GOLD) owns the remaining 50%.
The project has the potential to grow its value by up to 20 times when the gold price doubles as a result of several mineral characteristics.
First, the Donlin Gold project hosts 39 million ounces in gold resources, topping the average size of resources of its peers by more than five times.
Next, the concentration of gold in mineralized rock is one of the highest in the world. One ton of mineral contains 2.24 grams of gold versus the average grade of 1.10 grams of gold per ton of ore for the world’s resources.
Further, Donlin Gold can easily become one of the world’s largest producing assets, mining more than one million ounces of gold per year over a lengthy life of mine of almost three decades.
Finally, the project is in a mining-friendly jurisdiction.
NovaGold Resources will financially sustain the advancement of the project with approximately $157 million in cash on hand and short-term investments. The balance sheet is moderately leveraged as the debt-to-equity ratio is 0.67. The industry median is 0.25.
GuruFocus assigned a financial strength rating of 6 out of 10.
The stock is not at its cheapest. The share price is significantly higher than the 200-, 100- and 50-day simple moving average lines following a 114% increase over the past year through Aug. 28.
The price-book ratio is 16.60 compared to the industry median of 1.43.
Disclosure: I have no positions in any securities mentioned.
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