Is Gold a Good Investment in 2017?
We expect gold prices to gain 11.7% this year thanks to rising demand and slipping global supply. That means gold will be a great long-term asset to have in your portfolio this year.
Despite some weakness over the last month, the gold price is up 8.8% to $1,253 so far in 2017. And Money Morning Resource Specialist Peter Krauth expects it to rise another 11.7% to $1,400 per ounce by the end of this December.
But while physical gold could give you that 11.7% return in just over seven months, we’re looking at another Gold investment that could see a more explosive gain. This gold mining stock could potentially soar 63.6% over the next 12 months.
Before we get into that, here’s how gold prices have trended this year and what their rebound could do for our gold stock recommendation today…
Gold Is Still a Good Long-Term Investment Despite Recent Declines
Investors might be worried about gold because prices dropped from late April to early May. The metal fell 6% from $1,294 on April 18 to $1,216 on May 9.
One factor was the election of French President Emmanuel Macron on May 7 over right-wing candidate Marine Le Pen. After the first round of the election on April 23, Macron’s huge lead over Le Pen reassured investors there would be no market volatility. They speculated that Le Pen winning would have resulted in France pulling out of the European Union (EU). A Frexit following
last year’s Brexit would have further destabilized the already fractured EU, possibly leading to a big stock market sell-off.
But Macron’s victory meant no market volatility. Since gold prices typically rise when the market dips as investors use gold as a safe-haven hedge, the metal instead fell to a two-month low of $1,216 on May 9.
Still, gold’s brief decline was only temporary. After all, the metal has rebounded 3% to $1,253 since the May 9 bottom. Krauth believes this rebound will continue to $1,400 per ounce, and there’s one important reason why he’s bullish…
It’s simple: falling supply and rising demand.
Krauth’s forecast is driven by gold fundamentals. Demand is climbing around the world at the same time as supply is falling. That’s a perfect recipe for a rising gold price this year.
Recent data from the World Gold Council showed that global demand in the first quarter was 1,034.5 tons. The gold supply during the same time frame was 1,032 tons. As you can see, supply is coming up short of demand.
Demand for Gold is steady worldwide. Investors in Europe, especially in the UK and Germany, purchased eight times more gold exchange-traded funds (ETFs) than investors in the United States. Moreover, Q1 2017 was the third consecutive quarter that gold ETF demand from Europe was greater than U.S. demand. This likely indicates the unease caused by the Brexit and the prospect of Frexit.
Gold demand has also remained strong in Asian countries. Recently, a UBS research report on gold indicated an expectation of gold prices trading in a tight band for a while as concerns over the French election subside. UBS also said that the price of gold falling near $1,200 might spur discount buying.
The Best Gold Stock to Invest in This Year
Within the gold mining sector, you should consider buying shares of Goldcorp Inc. (NYSE: GG).
Goldcorp is one of the world’s leading gold producers, and it plans to keep it that way. Company management intends to increase production by up to 20% through 2022. This can only bring the company more profits as the gold price keeps rising and it makes more money on each ounce sold.
Investors interested in GG stock should also know that Goldcorp’s all-in sustaining cost (AISC) – which measures how much it costs to produce one ounce of gold – is $812. That’s among the lowest in the gold mining sector.
From Dec. 31 to March 27, Goldcorp stock gained 18% to $16.05. However, it has since fallen 15.6% from that peak to the current $13.55 level.
The share price likely dipped as investors briefly worried about the firm’s capital expenditures. On March 28, Goldcorp bought a stake in a Chilean mine in partnership with its competitor, Barrick Gold Corp. (NYSE: ABX). The partnership is likely to be very beneficial for Goldcorp’s bottom line over the long term.
Analysts from Thomson Reuters predict GG stock could surge to $22 per share by May 2018. That would be a 63.6% return from the current share price of $13.45.