Gold and gold mining stocks are a market that Wall Street loves to hate.
The precious metal and those who mine it have suffered while the stock market climbs to record highs.
It’s gotten to the point where even many long-term gold holders have begun to question whether the sun will ever shine on the metal again.
But as Karim Rahemtulla reported from the Prospectors & Developers of Canada (PDAC) Convention, things are starting to look up for gold.
Here’s my take on the three best things that I think gold and gold stocks have going for them, including one very exciting wildcard…
Positive #1: Central Bank Buying
In 2014, central banks bought 477.2 metric tons (mt) of gold, 17% more than in 2013. That marks the fifth consecutive year that central banks have now added gold reserves.
That’s quite a sharp reversal from two straight decades of heavy selling. The total gold bought over those five years adds up to 1,964 mt.
Leading the way in central bank buying is Russia. Its purchases topped 173 mt last year, accounting for more than one-third of all central bank purchases. This is the most ever since the breakup of the old Soviet Union.
It is believed that Russia stored over 55 tons of gold in secure Swiss vaults last year. Rumors of a partially gold-backed ruble continue to swirl around that beleaguered currency.
Positive #2: Gold Mining M&A
Merger and acquisition activity is picking up in the gold mining sector, as Karim established.
Already, $2.7 billion in deals have been announced in 2015. Last year saw only $10.5 billion in deals for the sector. We can expect more deals to occur in 2015 as gold mining companies, which accumulated $30 billion in debt during gold’s 12-year bull run, are forced to sell assets at distressed levels.
The lucky buyers will be companies like Randgold Resources (GOLD). This African-focused gold miner has sharp management. So sharp, in fact, that the company has no debt at all!
Randgold also avoided the asset write-down other gold miners have been forced into, and they recently raised its cash dividend by 20%.
At the BMO Global Metals & Mining Conference, the company’s CEO Mark Bristow said, “Never have I seen an opportunity like I feel is appearing in the market for M&A before, for 30 years.”
Among the miners, investors should look for companies like Randgold that’ll benefit from buying assets on the cheap.
Positive #3: Apple
The third positive factor for gold is a real wildcard… It’s the Apple (AAPL) watch.
According to The Wall Street Journal, Apple told its Asian suppliers to make five million to six million watches during the first quarter of 2015.
There were no specifics regarding the high-end Apple Watch Edition, which will sell somewhere between $5,000 and $10,000. But there’s speculation that the company told its suppliers to produce at least one million of the high-end, 18-karet gold-cased models in each month of the second quarter.
Apple anticipates strong demand for the high-end watch from Asia, particularly China.
According to Josh Centers from TidBITS, each gold watch will contain two troy ounces of gold. That doesn’t sound like much on the surface. But at one million units per month, that translates to 24 million troy ounces, or 746 mt.
That is about 30% of the total gold mined in a year!
Forrester Research forecast that Apple will sell 10 million Apple Watches in the first year. Other estimates are as high as 60 million. The question now is: How many of those will be the high-end gold-plated kind?
Apple just may turn out to be goldbugs’ favorite stock.
And the chase continues,