September 28, 2020 8:51 AM

Is gold the answer to today’s volatile stock market?

No need to panic with market volatility since precious metals such as gold can diversify a portfolio to take a good roller-coaster ride.

/ Published 2 years ago

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In December last year, it became obvious that the stock market has increased volatility. Higher volatility means dramatic changes in stock pricing over short periods whether that be positive or negative. Stock prices do not happen in a straight line. They bounce all the time.

Trading stock daily means volatility affects what an investor does more. Trading stock over the long term means the average over time affects more what an investor does. Either way, an investor can profit. An investor can profit from volatility if they know how to read the stocks.

Realistic expectations

With phenomenal growth, it becomes easier to make money on the stocks. A misjudgment can become quickly recovered from and more money found for an enterprise. When volatility entered the picture, strategy behaviors had to change to make a profit. Announcements of volatility usually mean it’s time to go review the portfolio and updates to the present conditions of the market should be made and decide from there. Even the most experienced investors sometimes react to what was, instead of what is.

For many months an extraordinary period of growth happened in the stock market, so it has changed, so investors must change strategies as well. Reasonable expectations on what the market can do help clarify the options. One of the ways to change is when an investor needs to look at other types of stocks for diversification purposes.

One of these is turning to gold as investing in gold stocks has been a well-known method to compensate for volatile markets.

Gold

A line of thought occurs with gold, which has been called honest money. Though mining from the ground remains back-breaking work fraught with peril that makes money by wheeling and dealing, at some point, it converts to a value on paper. Gold that reaches the stock market demands realistic thinking and strategies. It offers another way for the stock market to correct itself.

Mining stock has royalty streams of money that help defer market volatility. (Source)

Mining gold creates royalty companies. Royalty and streaming companies have a significant impact on the mining business. Termed as a specialized financier, it funds exploration and production for mining companies. The company receives royalties as in payments for doing such once the project produces ore.

It can also receive a right to a portion of the precious metals found. If managed well, royalty companies produce revenue no matter what the price of gold becomes in the market. While enduring a volatile time in the stock market, these stocks can serve as compensation against the fluctuations. Other gold stocks in the hierarchy can serve the function of diversification for volatility as well.

Companies

Investors have a wide array of choices in stocks in the gold sector. Except for the royal level of stock, a disciplined due diligence protocol with plenty of capital allocation helps to get good long-term returns. Mining stock has royalty, senior, junior and mid-tier levels. Seeking Alpha has a series of articles on the precious metal stock particularly gold that fills in any gaps about the stock type.

The following has a short list of possible options:

Osisko Gold Royalties (TSX: OR) just received word in December 2018 that it went into the normal course issuer bid program (NCIB). It now has rights to 10,459,829 common shares. Purchases must become made through TSX for a year. Classified as an intermediate precious metal royalty company it has a North America portfolio of 130 royalties, offtakes and streams. It has interests in Canada Malartic mine, Barkerville Gold Mines and Falco Resources.

Abitibi Royalties ( OTC: ATBYF, TSX-V: RZZ) announced January 2019 that production started with its 3 percent net smelter return (NSR) located at the Malartic Mine. It has a cash flow of CDN$2.7 million from nominal initial contribution and premiums of royalty. It likes to delve into early-stage properties and develop those pieces for the market.

Goldcorp (TSX: G) just did a mega-merger with Newmont (NYSE:NEM). A world-class gold producer to begin with its relationship with Newmont should further those ideas of sustainability. Lean on the senior management side it enhances shareholder value with its disruptive mining ideas. It supports technology initiatives.

Barrick Gold(TSX: ABX) (NYSE: GOLD) took over Randgold Resources. It must do some maneuvering to maintain profit levels. Its portion of the copper mines in Zambia received increased tax rates and fewer deductions that planned so negotiating at this time to make it a better deal for the company. It also has a tax dispute with Tanzania. Productive mines but needs the courts to rule to continue profitability in some lines of mining.

Ludin Mining (TSX: LUN) had a target volatility adjustment in January 2019. It likes the baseline approach. Weston Business Review did a look at the Book to Market ratio, Capex to PPE ratio and Free Cash Flow numbers. It discovered some possibilities in the stock if the numbers move further upward. A close watch would give an investor a benchmark or target point to decide to buy. Ludin does commit to sustainable development and social investments, but it does not centralize on a set of core values. Instead, it concentrates on projects and sustainable performance.

Investors can make money during a volatile period in the stock market. Knowing when to hold the stock, fold the stock or buy the stock help determined long-term gains. Meanwhile, do some research and explore some gold options while the stock market bounces.

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