The aggravation of coronavirus pandemic with each passing day has left investors scurrying for safe-haven assets as they remain apprehensive regarding the recovery of global economic growth and its consequent impact on stock markets. This, in turn, has triggered a demand for gold, which is considered as a key investment option during times of financial turbulence.

Gold Price Gains Momentum

On Apr 2, future price of gold for June delivery increased 2.9% to settle at $1,637.70 an ounce on Comex. This was the biggest one-day percentage gain for the most-active contract since Mar 24. The gold price has witnessed a recent low of $1,576 per ounce on Mar 31, after rallying to $1,707.80 per ounce on Mar 9.

The decline in gold price in March can primarily be attributed to two reasons. First, investors were selling everything including equities, bonds and precious metals owing to the panic caused by an unprecedented non-financial hazard — the coronavirus — to global financial markets. Second, partial or full lockdowns by various government to enforce social distancing in order to curb the spread of the virus, raised concerns about gold mining.

However, the precious yellow metal regained momentum after President Donald Trump told U.S. citizens to prepare for “very, very painful two weeks” on Mar 31. Moreover, weak economic data dented market participants' confidence.

The initial jobless claims by the Americans skyrocketed to a historic high of nearly 10 million for two consecutive weeks ended Mar 21 and Mar 28. The United States has never lost more than 1.4 million jobs in any two successive weeks in its history. Moreover, U.S. auto sales declined to 11.4 million in March from 16.7 million in February.

Further, U.S. manufacturing index for March, separately reported by the ISM and the IHS Markit, revealed that it contracted to its lowest level since 2009. Meanwhile, the Conference Board reported that the U.S. consumer confidence in March declined to 120 from 132.6 in the prior month.

Momentum Likely to Sustain

Buying pressure on gold is likely to remain robust with investors focusing on precious metals as a store of wealth and hedge against market turmoil at least for the next few months.

The present scenario of gold price soaring despite a surge in U.S. dollar index has left several economists and financial experts perplexed. On Apr 2, the U.S. Dollar Index (DXY), a gauge of the greenback against a basket of six major currencies, gained 0.4% to settle at 100.56.

Usually, a strong U.S. dollar weakens demand for other dollar-denominated bullions like gold. However, the northbound movement of both safe-haven assets highlights the impact of coronavirus on investor confidence.

Meanwhile, almost all central banks are pursuing easy monetary policies in order to inject more liquidity into the system. Fed has reduced the benchmark interest rate to zero. The ECB and the Bank of Japan are maintaining a negative interest rate policy for a long time. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other currencies.   

Our Top Picks

At this stage, it will be prudent to invest in gold stocks with strong growth potential. We have narrowed down our search to five such stocks. Each of these stocks carries a Zacks Rank # 2 (Buy).

The chart below shows the price performance of our five picks in the past month.

Franco-Nevada Corp. (FNV - Free Report) is a gold focused royalty and stream company with additional interests in platinum group metals and other resource assets. The company has an expected earnings growth of 22% for the current year. The Zacks Consensus Estimate for the current year earnings has improved by 3.3% over the last 60 days.

Alamos Gold Inc. (AGI - Free Report) is engaged in acquisition, exploration, development, and extraction of gold deposits in North America. It also explores for silver and precious metals. The company has an expected earnings growth of 30% for the current year. The Zacks Consensus Estimate for the current year earnings has improved by 18.2% over the last 60 days.

Barrick Gold Corp. (GOLD - Free Report) is engaged in exploration, mine development, production, and sale of gold and copper properties. It has ownership interests in producing gold mines located in North America, South America, and Africa. The company has an expected earnings growth of 41.2% for the current year. The Zacks Consensus Estimate for the current year earnings has improved by 2.9% over the last 60 days.

DRDGOLD Ltd. (DRD - Free Report) is a gold mining company offering surface gold tailings retreatment business in South Africa. Its activities include exploration, extraction, processing, and smelting. The company has an expected earnings growth of 562.5% for the current year (ending June 2020). The Zacks Consensus Estimate for the current year earnings has improved by 307.7% over the last 60 days.

NovaGold Resources Inc. (NG - Free Report) is a gold and copper company engaged in the exploration and development of mineral properties in Alaska and Western Canada. The company has an expected earnings growth of 11.1% for the current year (ending November 2020). The Zacks Consensus Estimate for the current year earnings has improved by 27.3% over the last 60 days.