The spot gold price rose to $1,582 per ounce on Monday, its highest closing level in nearly seven years, as investors sought safe havens amid the rapid spread of China’s coronavirus. This is just the latest threat to give a spark to gold stocks and create a burst of interest in gold investing. Is this a good time to buy gold stocks? If so, which ones?

Low inflation and an escalating China trade war fueled a gold price surge through much of 2019. Escalation of the U.S.-Iran conflict briefly lifted gold above $1,600 on an intraday basis in early January. Military tensions quickly subsided, but the coronavirus outbreak may persist for a while.

Positive Backdrop For Gold, Gold Stocks Investing

Gold price peaks have come as serious risks threatened the global economy. But this might be the best news for gold and gold stocks investing: The price of gold has remained resilient even as risk has receded. After the U.S. and China agreed to a phase-one trade deal reducing tariffs, the gold price remained around $1,500.

What has been behind the persistent strength? Fed policymakers now think too little inflation, not too much, is the overriding concern. If they’re right, real interest rates, the biggest factor influencing gold prices, can remain supportive even as the global economy improves.

After three quarter-point Fed rate cuts in 2019, it would take a significant downgrade of the economic outlook for the Fed to cut further. Yet even solid growth won’t lead to interest-rate hikes this year, as the Fed aims to boost inflation above its 2% target.

What if the Fed is making a mistake, and inflation has a resurgence? Well, that also might work out pretty well for gold investors. Institutional investors like gold as a hedge against inflation and uncertain times. After all, gold has proved its ability to hold value over centuries.

Likewise, if the coronavirus proves hard to stop and disruptive to the global economy, the price of gold could continue to gather steam.

So does investing in gold make sense for individual investors now? Here are some key things to consider when deciding when, whether and how to invest in gold, either via gold stocks — such as Kirkland Lake Gold (KL), Barrick Gold (GOLD) and Newmont Goldcorp (NEM) — or gold ETFs.

Also, don’t forget about silver miners such as Pan American Silver (PAAS).

Gold Investing: Gold ETFs And Stocks

Gold stocks and gold ETFs are the simplest way for individual investors to bet on a rising gold price. Investing in gold stocks can be a riskier, but also potentially more rewarding, way of investing in the precious metal.

Investors have three major options. They can buy gold stocks individually. They can buy an ETF that tracks the gold stocks, such as the VanEck Vectors Gold Miners ETF (GDX). Finally, they can get direct exposure to the precious metal itself via an ETF, such as the SPDR Gold Shares ETF (GLD).

Well-known gold mining stocks include Barrick Gold stock, Newmont stock and Kirkland Lake Gold stock. Another segment of gold stocks are gold royalty companies. These provide financing to gold miners, typically in exchange for below-market-cost purchase rights of gold they produce. Examples of gold royalty companies include Royal Gold (RGLD) and Franco-Nevada stock. Franco-Nevada was the IBD Stock Of The Day on Dec. 24.

You can research the top gold stocks, which are part of the broader Mining-Gold/Silver/Gems industry group, at IBD Stock Checkup.

Investing in gold stocks or a gold-mining ETF is, to a large extent, a leveraged bet that the price of gold will keep rising. That’s because a higher gold price can have a dramatic impact on the profitability of gold miners. For example, Newmont Goldcorp said its total cost of production amounted to $907 per ounce of gold in the first quarter of 2019. That meant increases in the price of gold above that level would go straight to the bottom line.

The rising price of gold in 2019, along with booming production, has made Kirkland Lake Gold stock a stalwart member of the premier IBD 50 stock list. As the year came to an end, Franco-Nevada and Royal Gold had joined the elite group.

Yet corporate leverage works both ways: Falling gold prices can shrink the bottom line in a hurry.

Investing in gold-mining stocks, especially a specific stock, brings in more complications than investing in the precious metal itself. The companies can suffer accidents or production snafus, deplete their reserves or pile up debt. On the upside, companies can increase mine output, find new reserves, or generate cost savings via mergers or mining productivity gains. Operational excellence fueled the rise of Kirkland Lake Gold. However, analysts worried that its announced acquisition of Detour Gold in November would create operational challenges and erode profit margins.

Gold Price History And Real Interest Rates

Adjusted for inflation, the price of gold hit an all-time peak in early 1980 amid double-digit inflation in the U.S. Unadjusted for inflation, the gold price peak above $1,900 per ounce came in August 2011. That came in the wake of the great financial crisis. The Fed was engaged in its second round of quantitative easing, the two-year Treasury yield hit historic lows below 0.2%, and the U.S. dollar index wasn’t far off historic lows after a fight over the debt ceiling nearly led to a U.S. debt default.

The gold price low of recent decades was just above $250 per ounce in 1999. That came as the U.S. economy was still enjoying the upside of the dot-com bubble and productivity was booming.

The common thread linking gold price highs and lows seems to be real interest rates. In 1980 and again in 2011, real interest rates were negative, with 2-year Treasury yields well below the rate of inflation.

In 1999, as the price of gold slumped, real interest rates were on the rise. The Fed was in a rate-hiking cycle, raising its benchmark rate north of 5%, well above roughly 2% inflation.

Why do real interest rates matter so much for the price of gold? Gold is a store of value, but holding it comes with an opportunity cost. That money could instead be invested safely in Treasuries, for example. If real interest rates are attractive, holding gold is much less attractive. When real interest rates turn negative, holding gold is usually a winner.

But real interest rates aren’t the only determinant of the price of gold. The supply-demand balance is among other important factors. For example, central bank sales of gold exacerbated the 1999 gold price slump.

How Gold Stocks Perform Vs. The Price Of Gold

In general, if you think gold is near a bottom and has room to run, history would say you’re better off owning gold stocks than the yellow metal itself. If you think gold could be nearing a top, you’re probably better off holding gold than gold stocks, based on past performance.

Consider, from the gold price bottom in late 2015 through June 2019, the SPDR Gold Shares ETF tracking the commodity’s price rose 31%. Meanwhile, the VanEck Vectors Gold Miners ETF rose 93% over the same span. That reflects the dramatic corporate earnings improvement thanks to the higher price of gold. Improved earnings, in turn, allow mining companies to increase dividends as the price of gold rises.

As the price of gold surged, Kirkland Lake Gold stock led the pack, nearly tripling from its Sept. 18, 2018, low through its record high hit on Sept. 4. That peak came as the U.S and China fired off their last round of tariffs. Royal Gold stock also saw a great run, nearly doubling over the same period.

Sometimes, corporate dynamics — and changing perceptions of them — can take precedence. Even though the price of gold came down a bit, Franco-Nevada stock broke out to a record high in late December, while Newmont stock hit a multiyear high.

Still, gold stock investors can never let down their guard: The descent for gold mining stocks from the 2011 price peak was much rougher than for the metal. To the trough in late 2015, the gold-tracking ETF tumbled 46%, but the ETF tracking gold miners cratered close to 80%.

The Gold Stock And Gold Price Outlook

The drop in real interest rates due to an abrupt U-turn from the Federal Reserve, as the China trade war hit the global economy, largely explained the rise in the price of gold in late 2018 and the first eight months of 2019.

Yet even though the U.S. and China struck a trade deal that will begin to unwind tariffs, and the outlook for the global economy has brightened, gold held close to its six-year high. Usually, gold stocks are stock market laggards when the outlook for the U.S. economy is solid. Yet, we’ve seen some gold stocks breaking out to new highs.

The evidence suggests we’re in a new era for gold stocks and gold investing, and Fed policy is at the heart of it. Even after the U.S. and China returned to fruitful negotiations, the Fed kept cutting rates this fall. The benchmark Fed funds rate target is now down to 1.5%-1.75%, with no rate hikes expected in 2020. The Fed has decided that too little inflation is a bigger threat than too much inflation. Fed Chair Jerome Powell has said it would take a significant, persistent rise in inflation before he would support a rate hike.

As long as the mindset holds and the Fed’s benchmark rate looks to stay anchored below the rate of inflation for the foreseeable future, real interest rates should support gold prices.

Dollar weakness also could have a positive impact on gold prices and gold stocks. Since it’s priced in dollars, gold will tend to rise if the dollar weakens against international currencies. The Fed’s shift to rate cutting and asset purchases from rate hikes and shrinking its balance sheet is also a factor here. For years, the Fed was the only major global central bank in tightening mode. Now it’s joined the European Central Bank and Bank of Japan is trying to stimulate inflation. If the dollar was overvalued, as some think, it can now correct.

Yet the coronavirus is that latest wild card that’s suddenly emerged in the outlook. Suddenly the dollar is getting a safety bid, but so are Treasuries and gold. The overall effect for gold prices is positive.

Some who see gold as a good long-term investment point to U.S. debt dynamics. Spiraling federal deficits and surging debt levels could force the Fed’s hand. In other words, the Fed might have to keep interest rates low or monetize the debt to avoid a fiscal crisis. If it goes far enough, that might even begin to erode the dollar’s role as the world’s reserve currency, gold bulls believe.

Yet, no matter your view of whether the price of gold is a good bet, it makes sense to subject investment decisions in gold stocks or an ETF tracking gold or gold stocks, to the same rigorous process as regular stock buys. That means waiting for a proper buy point and a buy signal.

At the moment, several gold stocks are in buy range or close to it. Barrick Gold is just below a cup-with-handle buy point after briefly clearing it Monday. Franco-Nevada is just in buy range from a three-weeks-tight pattern. Likewise, Newmont is extended from a traditional buy point, but in range from a three-weeks-tight entry.

The VanEck Vectors Gold Miners ETF is just below a cup-with-handle buy point at 29.97. Meanwhile, the SPDR Gold Shares ETF is in buy range from a 146.92 flat-base buy point, according to a MarketSmith analysis.

To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content.

Exxon Mobil (XOM) stock has been trending lower since last spring, but the Dow Jones oil major is pushing ahead with big shale investments and seeing production surge from the Permian Basin. Is Exxon stock a good buy? Take a look at Exxon earnings and the XOM stock chart.

Exxon Earnings Growth Stalls

Exxon earnings — and XOM stock — tend to rise and fall with crude oil prices. On Jan. 31 Exxon reported a 66% in Q4 earnings to 41 cents per share as revenue fell to $67.17 billion. Both missed Wall Street expectations. Production was flat at 4.02 million barrels of oil equivalent per day, with a 4% increase in liquids offset by a 5% decrease in gas. Permian Basin shale production jumped 54%.

Exxon earnings have risen an average 6% over the last three years, according to IBD’s Stock Checkup. On the revenue side, Exxon’s three-year growth rate is 8%.

Analysts see EPS jumping 41% in 2020 then slow to 10% growth in 2021, with revenue up 2.3% and down 3.1% in that time. Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.

Exxon stock does offer a strong 5.7% dividend yield. But that’s been rising in part because shares have trended lower for the past five years. A high dividend yield is a poor reward for a falling stock price.

Exxon Stock Technical Analysis

XOM stock hit its lowest level since October 2010 following Q1 earnings results. Shares are stuck well below their 50- and 200-day moving averages, according to MarketSmith chart analysis The relative strength line remains near a record low.

The relative strength line, which tracks a stock vs. the S&P 500 index, has been lagging since late 2011.

Exxon stock has a lowest-possible IBD Composite Rating of 1 out of 99 and a poor 14 EPS Rating.

As with other oil stocks to buy and watch, Exxon stock will rise and fall with crude oil prices. So even when Exxon looks good based on fundamentals and technicals, crude oil prices may suddenly plunge taking XOM stock down too.

Investors could choose to buy an energy exchange-traded fund as a way to play sector moves while avoiding stock-specific risk. Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.

Exxon Mobil Shale Investments

U.S. shale plays, like the Permian Basin, were dominated by independent U.S. producers in the early days of the shale rush. But now shale companies are scaling back spending to stay within their balance sheets, leaving the door open for oil majors.

Exxon plans to produce 1 million barrels per day in the Permian Basin as early as 2024, an 80% jump from prior estimates. There could be consolidation in the shale space as oil majors go on buying sprees.

Exxon is in the midst of asset sales that could reach $25 billion through 2025, across Europe, Africa and Asia as it looks to free up more capital to invest in the Permian Basin and massive projects like an oilfield in Guyana.

Exxon rival Chevron (CVX) lost its bid last year to buy shale producer Anadarko Petroleum (APC), after Occidental Petroleum (OXY) made a higher offer.

Crude oil prices rose during much of 2019 as OPEC, and top non-cartel members like Russia agreed to cut production by 1.2 million barrels per day. At its December meeting, OPEC and non-members decided to lower their collective oil production quota by an additional 500,000 barrels per day during Q1. Officials are considering moving up a March meeting to February to take a more drastic cut to counter falling oil demand over the coronavirus.

The Trump administration ended the waivers for some of the top importers of Iranian oil in May, squeezing global supplies.

Brent oil prices rose early in 2020 before falling. The coronavirus outbreak in China could cut $3 per barrel from oil prices as air travel slows, Goldman Sachs warned in a note to clients on Jan. 22.

Exxon Stock Is Not A Buy

Exxon stock is on a downward trend with no pattern in sight and the stock is below key benchmark lines. The Dow Jones component also has a very weak long-term RS line. Exxon earnings are volatile. Both earnings and XOM stock swing with crude oil prices. That can mean rapid short-term gains but also abrupt sell-offs.

Bottom line: Exxon stock is not a buy.

Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

Follow Gillian Rich on Twitter @IBD_GRich for energy news and more. 

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