Pro: This gold mining stock acts as ‘insurance’ against market downside

Written by: Jayson Derrick
January 4, 2021
  • Gold prices were higher by around 25% in 2020 and the rally should continue in 2021.
  • Gold should benefit from a weaker U.S. dollar.
  • However, this one particular gold miner stock offers a superior hedge against market downside.

Gold prices sold off from their all-time highs in late 2020 but still ended the year higher by around 25%. The commodity should continue its upward trend in the new year and investors looking for “insurance” against market downside should consider a stake in gold miner Barrick Gold Corp (NYSE: GOLD), according to Again Capital’s John Kilduff.

Bullish on gold

The first few weeks of 2021 could see new stimulus measures and extended unemployment benefits — followed by more stimulus measures “by the boatload,” Kilduff said on CNBC’s “Fast Money” on Dec. 31. These government measures “can only help gold” as the commodity is known to rise amid heavy government spending that by default lowers the value of the U.S. dollar.

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Specifically, the U.S. dollar was down more than 10% in 2020 and will be “under assault” from government spending, he said. But the government has “no choice” but to spend to support the U.S. economy and help U.S. citizens.

Gold might be old fashioned, or “your father’s bitcoin,” but the commodity will nevertheless rise in this environment.

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Buy Barrick instead

Yet investors may want to forego investing in the physical gold commodity and buy shares of Barrick instead, Kilduff said. Specifically, the gold miner offers investors exposure to both gold and copper.

“Both of those things are going to be pumped up by a weakening dollar we are already seeing,” he said. 

As such, Barrick offers investors a “great place to hide out” and offers protection against a potential downside move in the market. The stock is trading at an attractive valuation of 13 times P/E and offers a “decent” dividend yield of 1.5%.

By contrast, a lot of stocks are trading at 100-times sales and if the bull party is over then a stock like Barrick is “your insurance policy against the potential day of reckoning that could come,” he said.

What about silver?

Silver was an attractive commodity at the start of 2020 because it was underperforming gold, CNBC “Fast Money” regular Mike Khouw commented. But after 2020, the opposite holds true as silver is up more than 40% over the past six months while Barrick’s stock is down 15% over the same time period.

“I’m going to be rotating my silver position into gold,” Khou said.

Khou said investors that don’t want to buy the physical gold commodity can gain exposure to the metal through the exchange-traded fund SPDR Gold Trust (NYSE: GLD) or the VanEck Vectors Gold Miners ETF (NYSE: GDX).