Will Gold Prices Reach $3,000 By End Of 2021?

When equity markets entered the bear market territory in early 2020, several investors would have bet on gold prices to move significantly higher. While gold touched a record price of $2,070.05 per ounce in August, it has lost momentum since then to currently trade at $1,852.34 per ounce on last look.

Gold prices are up 19% in the last year and it has managed to outpace the S&P 500 which gained 15.6% in this period. Let’s take a look if gold prices can continue to surge higher in the next few months.

Gold has multiple secular tailwinds right now

Gold has been considered a safe hedge for several years. The price of the yellow metal generally has an inverse relationship with the stock market. So, in case you expect the markets to nosedive from current levels, gold prices should surge higher.

The stock markets are trading near record highs. But according to several economists and industry experts, equity markets are not in sync with the economy. Global GDP growth rates have declined in 2020 as several countries imposed lockdown restrictions. This led to a fall in consumer spending as people had no option but to stay at their homes.

The economic lockdown took a heavy toll on small and medium businesses which meant the unemployment rates of several countries were at multi-year highs. In order to offset the massive fall in consumer spending, governments provided residents with federal benefits. They also reduced interest rates to increase the borrowing capacities of individuals and enterprises.

Several of these issues continue to impact the global economy that is in the midst of a recession. Quantitative easing measures have weakened the U.S. dollar which is a key driver of gold prices. At a time of low interest rates, investors look to safe havens such as gold which increases the demand for the lustrous metal.

While gold prices might not gain 50% in 2021 to reach $3,000/ounce, a double-digit gain in prices can be expected by investors.  

How to invest in gold?

Investors can look to buy jewelry that is easy to acquire but has high mark-ups. You can get direct exposure by purchasing physical gold but it can be difficult to liquidate. Comparatively, gold certificates depend on the quality of companies that back them.

Gold ETFs give investors direct exposure and are highly liquid instruments while future contracts allow investors to control a large amount of gold with limited capital. However, another way investors can have exposure to gold is by investing in blue-chip mining stocks.

Here we look at three top mining stocks that have outpaced the broader markets in the last few years.

Barrick Gold

Barrick Gold is one of Canada’s largest companies and is valued at a market cap of $42 billion. This company has taken advantage of rising gold prices and reduced its net debt by 71% on a sequential basis in Q3 to $417 million. It also reported a record free-cash-flow of $1.4 billion and sold $1.5 billion of non-core assets in the September quarter.

Barrick Gold should have an AISC (all-in sustaining costs) of less than $1,000 per gold equivalent ounce in 2020. This suggests it will exit the year with an operating margin of between $900 and $1,000 per GEO, allowing the company to further strengthen its balance sheet.

The AISC is calculated as the costs associated with mining one ounce of gold. Barrick Gold is trading at a forward price to 2021 earnings multiple of 16.2 which is really cheap given analysts expect its earnings to increase at an annual rate of 38.6% in the next five years.

Wall Street has a 12-month average target price of $33.26 which is 40% above its current trading price.

Kirkland Gold

One of the top gold stocks in the last decade has been Kirkland Gold. Shares of this gold miner have gained a staggering 2,670% since January 2011. It has outperformed several of the best stocks that include Apple, Expedia and Starbucks over the long-term.

Between 2016 and 2019, Kirkland tripled its production and due to a fall in its AISC, the company has seen its earnings grow from $42 million to $560 million in this period. In 2020, Kirkland is forecast to increase sales by 77.5% to $2.45 billion due to its acquisition of Detour Gold for $3.7 billion.

SSR Mining

SSR Mining is another gold mining stock that needs to be on your radar. It has four assets that can mine about 780,000 GEO per year with an AISC of $900 an ounce giving itenough operating leverage. For example, if gold prices are near $1,500/ounce, SSR’s net will be around $600/ounce.

Currently with gold prices hovering around $1,855/ounce, the company’s net income will be closer to $950/ounce. This will allow SSR mining to generate about $450 million in free cash flow in each of the next two years.

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