The global economy is likely to be in the clutches of the deadly coronavirus for the whole of this year. Naturally, market participants are being compelled to shift toward safe-haven assets. Gold has turned out as the most-favored, safe haven among investors with a year-to-date rally of 28.8%. In contrast, the S&P 500 has gained 4.8% and the Dow is still in negative territory. The tech-heavy Nasdaq Composite has climbed 25.7%.

Gold price reached an all-time high of $2,063 on Aug 6 but declined 5.1% afterward till Aug 20. So, this recent weakness in gold price offers a lucrative opportunity for investors. Here we will discuss three reasons why the gold price rally should continue in the near term.

Delay in Fresh Fiscal Stimulus

Negotiations between the Republicans and Democrats over the second round of fiscal stimulus fell apart. Treasury Secretary Steven Mnuchin said that the Trump administration “wants to provide money for kids and jobs, a second round of the PPP and to help small businesses was over by the end of July.” Meanwhile, a new trench of stimulus is unlikely before September.

Market participants are worried that in the absence of a new fiscal stimulus, the unemployment rate, which is already at an alarming level, will further deteriorate and consumer spending may face a blow. Notably, consumer spending is the main driver of the GDP. These negatives are likely to have repercussions on the stock market, forcing investors to opt for safe-haven assets.

Fed Provides a Gloomy Outlook

On Aug 19, the Fed released the minutes of its latest FOMC meeting conducted during Jul 28-29. Per the minutes, officials have reduced the growth forecast for the rest of the year. Fed members have strongly advocated more fiscal stimulus apart from an unprecedented monetary stimulus package provided by the central bank to support the coronavirus-stricken economy.

Fed officials at the meeting “agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.”

The Fed will maintain the benchmark interest rate to a range of 0% to 0.25% until the central bank is “confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Aside from the concerns about economic growth, Fed officials are worried about risks to the financial system.

Coronavirus Woes Persist 

The need for more fiscal and monetary stimulus indicates that the U.S. economy is still reeling under the effect of the pandemic. The second spike in COVID-19 infections has delayed the reopening process of the economy.

Till today, the economy is operating far below its capacity at the pre-pandemic period. As of now, there is no indication of when a vaccine or a proper line of treatment will be available for coronavirus. Without a vaccine, doubts remain over the economy’s ability to operate in full capacity.

Our Top Picks

At this stage, it will be prudent to invest in gold stocks that have strong growth potential and witnessed robust earnings estimate revisions in the last 30 days. We have narrowed down our search to five such stocks. Each of these stocks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

AngloGold Ashanti Ltd. AU is an independent, global gold mining company with mines and exploration projects across Africa, Americas and Australasia. It is the third-biggest gold mining company globally in terms of production. The Zacks Rank #1 company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.8% over the last 30 days.

Barrick Gold Corp. GOLD is engaged in the exploration, mine development, production, and sale of gold and copper properties. It has ownership interests in gold mines located in North America, South America and Africa. The Zacks Rank #1 company has expected earnings growth of 80.4% for the current year. The Zacks Consensus Estimate for the current year has improved 9.5% over the last 30 days.

Kinross Gold Corp. KGC is engaged in the acquisition, exploration and development of gold properties in the United States, Russia, Brazil, Chile, Ghana and Mauritania. The Zacks Rank #2 company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 17.2% over the last 30 days.

Yamana Gold Inc. AUY is engaged in operating mines, development-stage projects, and exploration and mineral properties primarily in Canada, Brazil, Chile and Argentina. It mostly sells precious metals, including gold, silver and copper. The Zacks Rank #2 company has an expected earnings growth rate of 76.9% for next year. The Zacks Consensus Estimate for next year has improved by 43.8% over the last 30 days.

Eldorado Gold Corp. EGO is engaged in the exploration, discovery, acquisition, financing, development, production, sale and reclamation of mineral products primarily in Turkey, Canada, Greece, Brazil and Romania. It produces gold, as well as silver, lead, zinc and iron ore. The Zacks Rank #2 company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by more than 20.8% over the last 30 days.

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