Time to again turn our attention to gold.

Lots of recent commentary posits that gold has had its run. That the metal topped out at just under $2,100 per ounce, and now that is has slipped back below that level it’s done. Stick a fork in it and move on.

That’s some high-level delusion, on par with sell-siders’ suggestions back in 1999-2000 that Pets.com was here for the long-haul – because, clearly, an online retailer with no earnings and a low-end sock-puppet for a mascot was worthy of oxygen-deprived valuations.

No one ever expected gold to break the $2,000 barrier and then never see another down day. Even though gold is back in the high $1,800s,  the reality is that the metal’s underlying fundamentals have not suddenly changed in the last few weeks.

Federal Reserve governors are still promising zero interest rates for years to come. Inflation is already here for the main purchases we make (forget the CPI – it tracks baskets of things we don’t regularly purchase, like business suits and airplane tickets. But real inflation for the things we actually consume daily – food, medical care, education, etc. – is up meaningfully).

Jobless claims are again picking up, and if airline management is to be believed, tens of thousands of airline employees are days away from a pink slip. That's another knock to employment. US debt increases daily and Congress is – supposedly – going to spend another couple trillion dollars on a stimulus plan, increasing federal debt by another 9%.

We also have Stephen Roach, former chairman of Morgan Stanley Asia, now worried that the greenback is looking at a sharp decline going into 2021, as well as the possibility of a double-dip US recession. And we have an election coming up in just over a month that promises to be the most contentious, litigated, possibly violent election in modern US history – if not the entirety of US history.

I'm not sure what part of that says "sell gold."

Instead, it would seem that all of those together scream “make sure you own some gold because the future is looking highly suspect!”

In the recent past, I’ve mentioned Barrick Gold (GOLD) as the primary name to own in this space. And I will double down on that now that the shares of this Tier 1 miner have come off more than 8% so far this month.

But to Barrick, I’d add a Tier 2 miner – Yamana Gold (AUY). I’d do so partly because of the dividend. Granted, the dividend isn’t whopping – just 0.9%. But in a zero-rate world, a roughly 1% yield is better than a pointy stick to the eye.

Better yet, Yamana is a bit of a rebound play … with a bit of British upside potential.

At a result of the Covid crisis, Yamana suspended certain mining operations, thereby reducing expected production for 2020. For investors, that’s just opportunity spelled differently. The lost mining was always going to be temporary because the pandemic was always going to be temporary. Those lost ounces will be mined, and they will be mined at a time of higher gold prices, which means more dollars dropping to Yamana’s bottom line.

That will ultimately result in a higher stock price as well as a meatier dividend.

In fact, Yamana increased its annualized dividend by 12% with its September payment happening this week. It’s the fourth dividend increase since last summer, which cumulatively has bumped up Yamana’s dividend payment by 250%.

That trend still has legs, given gold’s current strength and what would seem to be higher gold prices – and, thus, fatter profits for Yamana – going into 2021 and beyond.

Then there’s the British upside potential. Yamana is looking to list its shares in London, likely by the end of October. That could provide a nice little pop to the stock as European investors – particularly institutions – add the miner to their portfolios.

So, all in … I’m not sure I see where the downside risk is in gold right now. There’s nothing of significance on the horizon that would seem to undermine the gold story, and there’s lots that bolsters that gold story. So, do yourself a solid and make sure you have some gold in your portfolio – Barrick and Yamana – for a little bit of income and a lot of protection.


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