Futures & Commodities

Gold mining stocks are a buy ahead of the U.S. election, strategist says

Key Points
  • Gambles told CNBC's "Squawk Box Europe" on Wednesday that whatever the outcome of the election, gold mining stocks were well positioned.
  • The VanEck Vectors Gold Miners ETF, which features major miners such as Newmont Corp, Barrick, Franco-Nevada and Wheaton Precious Metals, has vastly outperformed the broader market as gold prices have risen over the past 12 months.
A Freeport- McMoran Copper and Gold Inc. mine.
Source: Freeport-McMoran Copper & Gold Inc.

LONDON - Shares of gold mining companies are well placed for a win-win outcome from November's U.S. election, according to MBMG Group Managing Director Paul Gambles.

Gold has been clawing its way higher in recent days with economic uncertainty and the prospect of further U.S. stimulus providing upward momentum. The yellow metal lost some ground, however, after President Donald Trump spiked talks over a new coronavirus aid bill until after the election, initially providing gains for the dollar.

Spot gold was nudging higher again Wednesday, trading at just below $1,888 per troy ounce. The precious metal tends to be used as a safe haven for investors amid economic turmoil, and investors often seek exposure by buying shares of companies engaged in exploration and mining.

The VanEck Vectors Gold Miners ETF, which features major miners such as Newmont Corp, Barrick, Franco-Nevada and Wheaton Precious Metals, has vastly outperformed the broader market as gold prices have risen over the past 12 months.

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Gambles told CNBC's "Squawk Box Europe" on Wednesday that whatever the outcome of the election, gold mining stocks were well positioned.

"We have started buying gold mining stocks and we are likely to hold those way beyond the election, because we think they would benefit from stimulus, but we also think that they would benefit from the chaos of the American presidential election," Gambles said.

Should Trump win the election and the Democrats retain the House of Representatives, negotiations will likely resume between House Democrats and the White House. A Joe Biden victory, however, would be expected to result in a larger stimulus bill, with House Democrats having proposed a $2.2 trillion package.

A distinct possibility remains that in the event of a close election, Trump will refuse to accept the result citing doubts about mail-in votes being fraudulent, and a protracted dispute could play out in the Supreme Court, exerting downward pressure on risk assets.

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MBMG also began buying the FAANGs (Facebook, Amazon, Apple, Netflix and Google parent Alphabet) last week, along with other mainstream Nasdaq and S&P 500 names, in the hope of capturing the upside from an anticipated stimulus agreement. Gambles suggested that, in the run up to the election, these stocks offer the highest "beta," a measure of a stock's volatility.

"We have got a big cloud on the horizon in terms of whether the election result is an existential threat for the FAANGs or not, because of whether some of them get broken up, but we are not thinking about holding them to election and past the election," he said.

"Last week we started buying FAANGs, tech, Nasdaq, S&P 500, as we thought that stimulus was coming and we thought there was a little bit of value in those stocks now, but we want to be out of those well before Halloween."

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