While gold prices are not far from the highs of last September, gold stocks are hitting 52-week lows. So why choose gold stocks over the real thing? Right now, they’re a bargain, said Patrick Chidley, mining analyst for HSBC.
“Mining companies have been expanding their margins rapidly and as their earnings increase, these companies are paying very strong dividends,” he told CNBC Thursday.
Chidley cites Barrick Gold and Newmont Mining as top examples. “Every year they’ve been replacing their reserves. With the stock, you’re buying the reserve gold, plus you’re getting a return,” he added.
Chidley has an “overweight” rating on Barrick Gold, Randgold Resources, and El Dorado Gold.
“We think the whole mining sector is attractive right now,” he said. “Although we’re seeing gold prices come down off recent highs [the precious metal has dropped over $60 from Friday’s close], at $1,660, or $1,650 an ounce, these gold companies can make decent money.” On Thursday, spot gold was hovering around $1,660. HSBC is forecasting a rise in price to $1,850 an ounce, not based on gold’s value as a safe-haven asset, but for its performance against other currencies. “We have been seeing devaluation of currencies versus gold,” he said. “It seems to be the anti-dollar play.”
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Patrick Chidley does not personally own shares in ABX, EGO, or GOLD. HSBC, however, he has managed a public offering of securities for ABX within the past 12 months, and is a non-U.S. market maker (matches buyers and sellers) in securities issued by ABX “and/or in securities in respect of this company.” As of Jan. 31, EGO and GOLD were clients of HSBC. Disclaimer