The global economy is set to remain coronavirus-stricken in this year. Although, in April-May, stock markets of most of the countries recovered most of the ground that they lost in February-March, the global economy has a long road to go to reach to the pre-pandemic stage. The U.S. economy is not an exception.  

Meanwhile, economic devastations and the resulting market turmoil have gone well with precious metals, especially gold. The price of the yellow metal — an important safe-haven investment opportunity — was settled at $1,820.60 per ounce on Jul 8, the highest since Sep 14, 2011.

Year to date, the Dow and the S&P 500 indexes have declined 9.9% and 2.4%, respectively. The tech-heavy Nasdaq Composite is the sole major stock index which is in positive territory year to date with a gain of 17.6%. On the other hand, gold price has rallied more than 18% year to date. The momentum of gold is likely to continue this year due to reasons mentioned below.

Accommodative Monetary Policies

Almost all central banks are pursuing easy monetary policies in order to inject more liquidity into the system. The Fed has reduced the benchmark interest rate to zero and intends to maintain 0% interest rate and asset buyback programs till 2022. 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 assets. Moreover, globally, major central banks have strengthened their quantitative easing programs. Low interest rate and higher money supply will depreciate the value of currencies of these countries. A weak U.S. dollar will increase demand for dollar-denominated bullions like gold.

Concern Over Resurgence of Coronavirus Cases

Wall Street's impressive V-shaped recovery from the coronavirus-led bear market and the formation of a new bull market suffered halts in the past three weeks owing to a second surge in the COVID-19 outbreak.

On Jul 7, the United States reported a record high of more than 60,000 coronavirus cases in a single day. On Jul 8, this figure came in at more than 58,000. States like California, Texas and Florida witnessed the biggest spike in COVID-19 infections. According to Johns Hopkins University, the United States has more than 3 million confirmed coronavirus cases and more than 132,000 deaths.

Notably, the number of cases crossed 3 million from 2 million in less than a month time. Per a study by Wall Street Journal, the seven-day average for cases is higher than the 14-day average, reflecting the faster spread of COVID-19.

Strong Projection for Gold Price

Gold price closed higher than $1,800 per ounce for the last four consecutive days. As the psychological resistance of $1,800 per ounce has been surpassed, several investment banks have raised their target price and believe that the yellow-metal's all-time high price at 1,921 can be breached this year.

On Jul 7, the World Gold Council reported that global net inflows in gold ETFs reached $39.5 billion in the first half of 2020, surpassing the previous annual inflow record of 2016.

ABN Amro raised its price target from $1,800 to $2,000 this year. In April, Bank of America raised the gold price target to $3,000 per ounce for the next 18 months. Goldman Sachs pushed up its target price from $1,600 to $2,000. Citigroup estimates a target price of $1,825 for next three months.

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 that popped in the past month. Each of these stocks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy).

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

Harmony Gold Mining Co. Ltd. (HMY - Free Report) conducts underground and surface gold mining. It is the third largest producer of gold in South Africa and the eleventh-largest gold producer in the world. The Zacks Rank #2 company has an expected earnings growth rate of more than 100% for the current year (ending June 2021). The stock price has rallied 71.2% in the past month.

Galiano Gold Inc. (GAU - Free Report) is engaged in the exploration, development, and production of gold properties. It operates and manages the Asanko Gold Mine, which is located in Ghana, West Africa. The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year. The stock price has soared 42.1% in the past month.

Alamos Gold Inc. (AGI - Free Report) is engaged in the acquisition, exploration, development and extraction of gold deposits in North America. It also explores for silver and precious metals. The Zacks #2 company has an expected earnings growth of 65% for the current year. The stock price has jumped 33.2% in the past month.

AngloGold Ashanti Ltd. (AU - Free Report) is an independent, global gold mining company with mines and exploration projects across Africa, Americas and Australasia. It is the third-biggest gold mining company globally in terms of production. The Zacks Rank #2 company has expected earnings growth of 109.9% for the current year. The stock price has climbed 27.2% in the past month.

Sandstorm Gold Ltd. (SAND - Free Report) is focused on completing gold purchase agreements with gold mining companies that have advanced-stage development projects or operating mines. The Zacks Rank #2 company has an expected earnings growth rate of 55.6% for the current year. The stock price has surged 19.1% in the past month.