We recently compiled a list of the 10 Best Gold Mining Companies to Invest in. In this article, we are going to take a look at where Agnico Eagle Mines Limited (NYSE:AEM) stands against the other gold mining stocks.

Gold has reached an all-time high, capping a 20-month rally with a 50% increase. Although the selling pressure from the retail investor would have an adverse affect on gold prices, however, this surge is driven by central banks buying record volumes of bullion mainly due to the desire to reduce dependence on US dollar, conflicts in the Middle East, and strong demand from Chinese consumers amid disappointing local equities, property, and currency markets. Furthermore, Chinese political leaders noticed that financial assets of the Russian government including bonds and reserves got confiscated by Western governments after Russia invaded Ukraine. Christopher Mancini, who co-manages Gabelli Gold Fund says “The Chinese central bank saw that happened and said ‘We don’t want that to happen to us.’ It would make sense for them to want to significantly retire their [U.S.] dollar reserves. With gold, they don’t have to worry about being repaid. We know they have been buying a consistent amount of gold every day.”

Bernard Dahdah from Natixis suggests central banks might continue buying gold due to tensions between the US and China, potentially making prices above $2,300 the new norm. The move to gold also reflects a broader trend of nations reducing their reliance on the U.S. dollar, prompted by the dollar’s use as a geopolitical tool against Russia, leading to gold prices reaching an all-time high of $2,480 per ounce on July 17, 2024. In U.S. the Fed is expected to cut the Fed funds rate, but inflation may remain steady, leading to lower real interest rates. This scenario benefits gold as the opportunity cost of holding non-interest-bearing gold decreases compared to cash and bonds. Additionally, a decline in U.S. real interest rates may weaken the U.S. dollar, making gold, which is globally priced in dollars, more attractive.

Owning gold directly provides a “store of value” but offers limited returns rather than generate substantial gains like equities. However, other than its appeal in its ability to preserve value, many investors view it as a hedge against economic troubles rather than a high-return investment. So an investor otherwise seeking gold as a soaring investment would be disappointed in the longer term as it doesn’t appreciate by much as gold has risen less than 300% in a century with annualized real returns of 1.34%, adjusted for inflation. Therefore investors looking for a more aggressive approach, aim for gold mining stocks that provide leverage to the gold price that yields returns surpassing those of the underlying commodity.

Despite this leverage, the underlying stock valuations will consider future cash flows and market volatility of the gold as well as the consensus price estimates by market participants. Nonetheless, gold miner stocks should be more volatile than gold itself, offering greater returns if the investor’s thesis on rising gold prices is correct.

Regardless of gold prices rising over the last 15 years, gold mining ETFs and major miners (Agnico, Newmont, Barrick) have underperformed compared to physical gold. Although some companies covered in this article have succeeded, the gold mining sector requires careful scrutiny beyond just reserves and production. Like any other investment that is carefully analyzed mining companies need to be analysed based on management, capital allocation, and geopolitical risk. It is also because of these factors that gold mining companies are unable to reach their potential as viable investments.

Methodology

To curate our list of 10 Best Gold Mining Companies to Invest in, we gathered a list of all companies using the holdings of gold miners ETFs. We then further narrowed down on the basis of their upside potential. With this let’s now jump to our list of the 10 Best Gold Mining Companies to Invest in.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Agnico Eagle Mines Limited (NYSE:AEM)

Current Price: $74.75

Upside Potential: 12%

Agnico Eagle Mines Limited (NYSE:AEM), a major player in the Canadian gold industry, manages mining operations across Canada, Finland, Australia, and Mexico, while also conducting exploration and development endeavors in the United States. The company adopts a strategy of retaining complete exposure to rising gold prices by abstaining from forward gold sales. Analysts have overwhelmingly endorsed the company’s shares, with an average Strong Buy rating. Agnico Eagle Mines Limited (NYSE) is a Canadian gold mining company with operations in Canada, Australia, Finland, and Mexico. In Q1 2024, its revenue soared to over $1.8 billion, a 21% increase from Q1 2023, driven by robust production from Canadian Malartic, Macassa, and Nunavut operations, and high gold prices. This resulted in a record $396 million in free cash flows, up 50%, and $1 billion in margins, largely due to the Detour Lake and Canadian Malartic mines.

However, the company anticipates an increase in all-in sustaining costs from $1,191 per ounce in Q1 2024 to between $1,200 and $1,250, which could impact profitability and cash flows. Agnico Eagle also increased its stake in Maple Gold Mines from 12% to 19.9% in June 2024 and is advancing projects like the Odyssey mine at the Canadian Malartic complex, expected to produce 500,000 ounces by 2030.

Overall AEM ranks 9th on our list of the best gold mining stocks to buy. You can visit 10 Best Gold Mining Companies to Invest in to see the other gold mining stocks that are on hedge funds’ radar. While we acknowledge the potential of AEM 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 AEM 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.