We recently compiled a list of the 14 Most Promising Gold Stocks Now. In this article, we are going to take a look at where Centerra Gold Inc. (NYSE:CGAU) stands against the other promising gold stocks.
Global Gold Market Dynamics and Investment Trends in 2023
The global gold market is a vast and multifaceted industry, with a diverse range of participants and investment opportunities. The total above-ground stock of gold is estimated to be around 209,000 tons, worth approximately $12 trillion. Central banks hold around 35,715 tonnes of gold, accounting for 16% of total global allocated reserves, second only to the US dollar and the euro. Investors view gold as a safe-haven asset and a hedge against economic uncertainties. In 2023, global investment demand for gold (bars, coins, and ETFs) was the lowest since 2014, primarily due to outflows from gold ETFs.
Gold prices increased 13% in 2023 as investors considered it a hedge against inflation in the face of economic turmoil. Driven by investors, industry, and central banks, demand reached 4,899 metric tons. Demand was further stimulated by the SVB bankruptcy and the Middle East tensions, which resulted in large rises in gold equities. According to Invesco and Bloomberg reports, sovereign wealth funds and central banks, who oversee $21 trillion in assets, significantly raised their gold holdings.
Gold-tracking ETFs showed robust gains in 2023: SPDR’s ETF rose 12% YTD, and iShares’ ETF increased by 12.1% YTD. Analysts attribute gold’s recent success to favorable market conditions likened to a “Goldilocks scenario,” marked by ideal circumstances for investors.
Gold Stocks and Their Relationship to Gold Prices
Investors are increasingly turning to gold stocks to diversify their portfolios amidst economic uncertainties. According to a report by State Street Global Advisors, gold has historically offered positive risk-adjusted returns, averaging a 7.7% compound annual growth rate in USD terms since August 15, 1971, making it a sought-after safe-haven asset.
A VanEck report highlighted that gold prices directly influence the performance of gold stocks, underscoring the correlation between the two.
“Gold stocks are supposed to outperform the metal when gold’s price rises. Their leverage to gold justifies outperformance. For any given move in the price of gold, the operating cash flow generated by these companies increases (or decreases) by a much greater percentage. Take Alamos (8.06% of Fund net assets), for example. The company estimates that a 5% increase in the price of gold (about a+$100/oz move), would translate into an increase of almost 30% in their free cash flow in 2024. “
The VanEck report noted a recent disconnect between gold prices and gold stocks in the past two years, primarily due to central bank buying and other temporary factors.
Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan echoed the prevailing market sentiment regarding gold.
“Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver throughout 2024 and into the first half of 2025, though timing an entry will continue to be critical. At the moment, gold still appears quite rich relative to underlying rates and foreign exchange (FX) fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts.”
Our Methodology
Our methodology involves sorting gold stocks based on their upside potential of at least 20%. Upside potential represents the likelihood, in percentage terms, that a stock will reach a specified price target within the next 12 months, as estimated by analysts. This calculation is derived by subtracting the consensus price target from the current stock price, dividing the result by the current price, and multiplying by 100. Additionally, for each stock we shared the number of bullish hedge fund positions, but the rankings are purely based on each stock’s upside potential. A higher upside potential corresponds to a higher rank for the stock in our analysis.
Before talking about the most promising gold stocks, we noticed that there is some interest towards Gold IRAs among investors. While these products may offer some tax advantages and diversification, we don’t endorse any particular company in this space. The IRS allows holding certain precious metals, including gold, silver, platinum, and palladium, in a self-directed IRA, however, gold IRAs might not be suitable for all investors. They typically have higher fees compared to traditional IRAs and involve additional storage costs.
Aerial view of modern machinery operating in a gold mining site.
Centerra Gold Inc. (NYSE:CGAU)
Upside Potential: 62.48%
Number of Hedge Funds: 16
Centerra Gold Inc. (NYSE:CGAU) is a Canadian gold mining company with operations in North America and Turkey. Its flagship projects are the 100% owned Mount Milligan gold-copper mine in British Columbia, Canada, and the Öksüt gold mine in Turkey. Centerra Gold has received overwhelmingly positive recommendations from analysts, with a consensus rating of “Strong Buy.” Six Wall Street analysts have set a 12-month price objective forCenterra Gold Inc. (NYSE:CGAU) over the last three months, ranging from $8.00 to $9.45, with an average of $8.71. This implies a price increase of 28.66% over the current $6.77.
As of Q1 2024, 16 hedge funds held positions in Centerra Gold Inc. The fund with the largest stake was Condire Investors, holding 6.19 million shares, which comprised 4.94% of their portfolio.
Centerra Gold Inc. (NYSE:CGAU) recently reported its first-quarter 2024 financial results, and the numbers are impressive. Their revenue stood at $321.2 million in Q1 2034, beating analysts’ estimates of $309.5 million and their earnings per share (EPS) stood at $0.12, surpassing the consensus estimate of $0.09. Their net income was reported to be $26.4 million which is a significant improvement from the net loss of $8.2 million in Q1 2023. Their operating cash flow was $92.1 million, up 37% year-over-year, and free cash flow stood at $48.6 million which is a substantial increase from $12.3 million in Q1 2023.
Overall CGAU ranks 14th on our list of the most promising gold stocks to buy. You can visit 14 Most Promising Gold Stocks Now to see the other promising gold stocks that are on hedge funds’ radar. While we acknowledge the potential of CGAU as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CGAU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
