While you may think physical gold is the go-to gold investment, we believe gold mining companies are the best way to play the price rally for big profits.
You see, the price of gold is already up 9.5% in 2017. On Dec. 30, 2016, an ounce of gold sold for $1,151.70. Right now, the metal trades at $1,261.50. And Money Morning Resource Specialist Peter Krauth thinks it will add another 11% to trade at $1,400 by the end of the year.
Catalysts That Will Boost Gold Prices in 2017
Gold mining companies are poised to make the most money from that 11% rise. After all, miners make a larger profit on every ounce sold when prices are climbing.
That's why we're recommending two gold mining stocks today, which are set to rally 88.9% and 49.4% by April 2018.
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Here are two reasons why gold prices and gold mining stocks will soar in 2017...
This Is Why Gold Prices and Gold Stocks Will Run Higher in 2017
The first catalyst behind the gold rally will be increased volatility in the stock market.
Gold is considered a safe-haven investment. These "safe havens" are long-term assets investors keep in their portfolio to hedge against any downturn in the market. That's because the value of safe havens either increases or stays the same when stocks become volatile.
While no one can precisely time a downturn, the United States has been in an eight-year-long bull market since the Dow Jones bottomed from the financial crisis on March 6, 2009. The index has broken records this year as it soared above 20,000 and 21,000 for the first time ever.
It's prudent to think a stock market correction is on the horizon.
Ongoing political uncertainty could also send the market into a volatile frenzy. Brexit negotiations between the United Kingdom and European Union are already underway. On March 29, UK Prime Minister Theresa May triggered Article 50 - an EU clause outlining the necessary steps for a country to voluntarily leave the bloc - to begin the two-year exit process.
Markets could also negatively react to interest rate policy. After raising rates last month, the Federal Reserve stated it plans to raise rates as many as three more times in 2017. That can cause markets to pull back, as it did in the aftermath of the March 15 rate hike. Since then, the S&P 500 is down 1.1%.
On the other hand, the price of gold has gained 5.1% to $1,261.50 over the same period. It's clear that investors are buying up gold just in case something dramatic happens in the stock market. This growing interest in gold's safe-haven qualities will continue in 2017.
The second factor that will push the gold price higher is inflation, which is currently at a five-year high of 2.7%.
Inflation can hurt the economy because it means consumer prices are rising. When goods and services become more expensive, consumers are less incentivized to spend. That reduced spending fundamentally hurts economic growth.
Slowing economic growth can spook investors into selling their stocks. And as we discussed, gold demand increases during a stock market sell-off.
These two factors - market volatility and a rising inflation rate - will boost gold prices in 2017. And while you could buy physical gold to play the price rally, storing and maintaining the quality of gold bullion can be a difficult long-term process.
That's why we highly recommend investing in gold mining companies in 2017. Their profit margins are poised to increase significantly as the price of gold gains 11% to $1,400 by the end of 2017.
Here are the two best gold stocks to buy for 88.9% and 49.4% gains over the next year...
Invest in These Gold Mining Companies for 88.9% and 49.4% Returns
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Our first gold stock recommendation is Goldcorp Inc. (NYSE: GG), which is already up 9% to $14.82. However, analysts surveyed by Yahoo Finance think it could climb as much as 88.9% to $28 per share by April 2018.
Goldcorp is also one of Money Morning Executive Editor Bill Patalon's top gold stocks of 2017. He says it's one of the most efficiently run gold mining companies out there.
Evidence of the company's efficiency can be found in its extremely low all-in sustaining cost (AISC). This measures how much it costs to produce one ounce of gold. With an AISC of $812 per ounce, Goldcorp's is one of the lowest in the gold mining industry. That means the firm theoretically nets a $449.50 profit on every ounce of gold it produces at the current $1,261.50 price.
As the company's profit margin increases alongside the gold price, GG stock will surely do the same. That's why analysts see it rising 88.9% to $28 a share by next April.
Our second gold mining stock, Barrick Gold Corp. (NYSE: ABX), is also an efficient producer. In fact, Barrick happens to be the largest gold miner in the world.
Its profits are also going to be propelled by its AISC, which is the lowest in the sector at $760. Better yet, the company plans to reduce its AISC even further to $700 in three years by boosting output and lowering debt.
Even if Barrick still has a $760 AISC by the end of 2017, it would still enjoy a profit margin of nearly 50% considering the projected $1,400 gold price.
Shares of ABX stock are up 21.4% to $19.31 in 2017. Analysts expect it to rally as much as 49.4% to $28.86 over the next 12 months.
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