Last week, gold and silver hit record highs and investors are pondering which precious metals stocks may follow suit. Gold reached its highest level on record, and silver reached an 11-year high. While precious metal prices have retreated slightly since then, the general trend has been on the upside over recent months. Expectations also rise that this will continue for the rest of the year.
Several factors are currently coinciding to push gold and silver prices higher, potentially dragging precious metals stocks up on their way. Demand from central banks remains solid. That is despite higher prices, as banks seek to build reserves in an effort to reduce reliance on the dollar’s dominance as a reserve currency. At the same time, interest rates are forecast to fall in the coming months as the Fed moves to ease monetary policy. Lower interest rates are typically correlated with higher prices for precious metals.
With the Fed anticipated to cut rates later this year, three precious metals stocks, including mining and royalty firms, could surge.
Franco-Nevada (FNV)
Franco-Nevada (NYSE:FNV) is one of the largest mining royalty companies in the world. It generates income through royalties without the operational risks faced by mining companies owning mines. Precious metals make up over 75.5% of the company’s revenue. Notably, 82.8% of its royalties come from mines in the Americas. This reduces exposure to geopolitical tensions impacting transport routes like the recent Red Sea crisis.
The company provides financing for new mining exploration, though its activities have been constrained in the previous two years due to rising interest rates. As interest rates are expected to fall, Franco-Nevada is one of the precious metals stocks that could gain from expanding into new markets.
Franco-Nevada has no debt and over $2.3 billion in cash reserves available to expand its operations. The FNV stock trades at a price-to-earnings (P/E) ratio of 35x, which is low relative to its history. Analysts have a positive outlook, with an average price target suggesting over 17% upside from current prices.
Barrick Gold (GOLD)
Considering its ticker, it would be rather strange to leave Barrick Gold (NYSE:GOLD) outside a list of precious metals stocks that could gain from higher precious metals prices. Barrick is the second-largest gold miner in the world by market cap. Its value to investors offers stability in a growing environment over fast but riskier growth in smaller precious metals stocks.
Barrick has been driven to increase production by 30% by the decade’s end. It follows taking advantage of the low-interest rate environment to buy up assets in the last couple of years. It focuses on so-called “tier 1” assets, such as large gold mines offering economies of scale and reducing costs. In fact, it owns one of the world’s lowest-cost gold mines, Pueblo Viejo in Panama, where it is working hard to increase production.
The Barrick stock trades at a P/E ratio of 20.7x, below the average S&P 500 benchmark of 27.5x. According to the average of analyst estimates, Barrick’s stock price could reach $22.08, a potential 30% upside from current levels.
Equinox Gold (EQX)
Equinox (NYSEMKT:EQX) is the last pick in this list of precious metals stocks. Currently, in a ramp-up phase, the company operates eight mines, and more are under development. Although it is not generating a profit, it is working to reach its production target of one million ounces of gold per year.
The company recently acquired the remaining interest in Canada’s Greenstone gold mine. Greenstone Mine is expected to begin production in the third quarter and will be one of the largest gold mines in Canada. Analysts estimate Equinox will produce gold at a cost of $879 per ounce, less than half the current gold price. That offers Equinox the potential to increase its profit margins substantially.
The sole analyst who has reviewed the company remains positive about its prospects. The forecast shows the Equinox stock price could increase to $7.30, representing a 31% rise from the current price.
On the date of publication, Stavros Tousios did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
