“Go for gold” isn't just the prevailing sentiment among investors, as the world's reserve metal hovers near all-time highs - it's also the title of a new bull note from analysts at Goldman Sachs, where the investment bank called gold “our preferred hedge against geopolitical and financial risks.”
Gold's strong showing in 2024 can be attributed to various macroeconomic factors, including record central bank buying and consistently elevated geopolitical anxiety. December gold futures (GCZ24), the most active contract, are up 16.9% on a YTD basis, outperforming both the S&P 500 Index ($SPX) and the Nasdaq Composite ($NASX) on the year.
In July, global gold ETFs saw their best month since April 2022, with $3.7 billion of inflows - the third consecutive monthly inflow. Additionally, gold's use in the technology sector increased by 11% on a YoY basis in Q2, its third consecutive quarter of double-digit growth amid rising artificial intelligence (AI) demand.
Along with Goldman, analysts at UBS and Commerzbank are bullish on gold, too, with expectations for continued central bank buying and rate cuts from the Fed providing support for the previous metal. To that point, a 2024 Central Bank Gold Reserves survey indicated that “29% of central banks respondents intend to increase their gold reserves in the next twelve months."
Bank of America analysts weighed in, too, naming these two picks among their favorite ideas to capitalize on continued upside in gold prices.
Wheaton Precious Metals
Founded in 2004 as Silver Wheaton before rebranding in 2017, Wheaton Precious Metals (WPM) is a leading precious metals streaming company. They don't own or operate mines, but instead provide upfront financing to mining companies in exchange for the right to buy a portion of their future metals production at pre-determined prices, typically below market rates. This allows them to benefit from rising metal prices without the risks and costs of mine ownership. WPM's market cap currently stands at about $27.1 billion.
WPM stock is up 17.5% on a YTD basis, and offers a dividend yield of 1.04%.
WPM's results for Q2 2024 featured the company's fifth consecutive quarterly earnings beat. WPM reported revenues of $299.1 million for the quarter, up 12.9% from the previous year, while EPS increased by 4.8% over the same period to $0.33. Overall, over the past 10 years, Wheaton's revenues and EPS have clocked CAGRs of 5.75% and 6.16%, respectively.
Gold units produced and sold increased from the prior year, as well. While gold units produced were at 84,993 ounces (+2.2% YoY), 77,326 ounces of gold units were sold in the quarter (+2.7% YoY).
Further, operating cash flows rose by 15.8% from the prior year to $234.4 million, as the company closed the quarter with a robust cash balance of $540.2 million.
Wheaton's business model as a “streamer” makes its operations relatively more stable than traditional miners. Under this model, Wheaton finances mining projects with an agreement to purchase a percentage of future metal production from the mine. With the capital available to the miner, it is free to do whatever it wants, while at the same time not diluting any of its ownership.
Wheaton's existing mine life is 28 years, with an additional 12 years' worth of measured and indicated resources and 24 years of inferred resources with 90% of its production being low-cost. With revenue visibility in the form of deep reserves and low-cost productions, Wheaton's profitability is expected to rise.
Moreover, Wheaton's exposure to two key precious metals in the form of gold and silver provides it with an advantage over its peers. Wheaton is the only major streamer with almost 100% exposure to gold and silver (SIU24). Notably, Wheaton's presence is geographically diversified, with operations in Brazil, Mexico, Canada, and Europe with projects under development in North America, making it less vulnerable to concentration risks.
Analysts have an average rating of “Strong Buy” for WPM stock, with a mean target price of $65.14. This denotes an expected upside potential of roughly 13.3% from current levels.
Out of 12 analysts covering WPM stock, 9 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 2 have a “Hold” rating.
Iamgold Corp
Founded in 1998, Iamgold (IAG) is a Canadian-based gold mining company with a global footprint. The company primarily focuses on the exploration, development, and production of gold. IAG owns and operates several gold mines, with operations involving various stages of the mining process, from exploration and development to extraction and processing. Its market cap is currently $2.85 billion.
IAG stock has been on a tear in 2024, up 90.1% on a YTD basis.
IAG's Q2 revenues of $385.3 million represented yearly growth of 61.3%, and the company reported EPS of $0.16 in the quarter, compared to a loss of $0.01 per share in the prior year. This marked the sixth consecutive quarter of Iamgold's bottom line surpassing Wall Street's estimates.
Gold production rose by a noteworthy 55.1% from the prior year to 166,000 ounces. Average realized gold prices improved, as well, up by 16.3% to $2,294/ounce.
Further, cash flow from operations jumped to $160.1 million from $23.2 million in the year-ago period, while IAG's cash balance rose to $511.4 million at the end of the quarter from $367.1 million at the start of the year. Long-term debt also declined to $814.8 million from $830.8 at the end of last year.
As of December 2023, Iamgold reported proven and probable mineral reserves of 7.79 million ounces attributable to the company. These reserves are spread across three operating mines: Essakane in Burkina Faso, Westwood in Canada, and Côté Gold in Canada. Among these, Côté Gold is positioned to drive the majority of Iamgold’s growth in the coming years. It stands as one of the largest mines in Canada with an estimated operational life extending to 2041, compared to Essakane's expected closure in 2028 and Westwood's in 2033.
Throughout its life, the Côté Gold mine is projected to produce 365,000 ounces annually at 100% capacity. In May, Iamgold secured a $300 million financing deal, enabling the company to repurchase a 9.7% stake in Côté Gold from Sumitomo Metal Mining by November. Once this transaction is finalized, Iamgold will hold a 70% ownership stake in the mine.
Overall, analysts rate IAG stock a “Moderate Buy,” with a mean target price of $5.31. This denotes an upside potential of about 10.4% from current levels. Out of 11 analysts covering the stock, 3 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 6 have a “Hold” rating, and 1 has a “Strong Sell” rating.
