Gold Stocks vs Oil Stocks: Where Canadians Should Invest for the Rest of 2024

As Canadian investors consider their options for the remainder of 2024, gold and oil stocks present two distinct opportunities to play the commodities sector. Both have shown notable performance this year, although in different directions. If you are evaluating a gold play or an oil stocks bet for the fourth quarter, let’s see which options might provide the best returns.

Gold market overview

Gold Price in US Dollars data by YCharts

Gold has demonstrated strong performance in 2024, with prices rising 26.4% year-to-date and reaching new 52-week highs. Several factors contribute to gold’s current appeal:

1. Safe haven: When financial markets get shakey, investors often turn to gold.
2. Interest rate expectations: Anticipation of lower interest rates and talks of slower growth can increase gold’s attractiveness.
3. Inflation hedge: Gold is traditionally viewed as a protection against rising prices.

If you’re inclined towards gold stocks but lack the energy to research individual stocks, consider exchange-traded funds (ETFs). The iShares S&P/TSX Global Gold Index ETF (TSX:XGD) is up 31.4% this year and gives you exposure to 41 global gold stocks in a $1.4 billion portfolio. Just remember, it’s heavily weighted towards big players like Newmont and Barrick Gold and its top 10 holdings comprise 80.4% of the portfolio.

If you want something more balanced, the BMO Equal Weight Global Gold Index ETF spreads company-specific risks even across 35 stocks.

The oil situation

WTI Crude Oil Spot Price data by YCharts

The oil market has faced challenges in recent months, with prices declining 13% during the past three months. However, several factors could influence oil prices in the fourth quarter:

1. Refinery activity: Bloomberg recently reported that US refineries are planning less downtime this winter. Sustained uptake of crude oil mine production should mop up any excess oil supplies and support oil prices during the remainder of 2024.
2. Geopolitical tensions: Escalating conflicts in the Middle East could affect oil supply and drive prices up. A series of pager explosions in Lebanon this week raises the stakes of a full-blown war between Israel and the Iran-backed Hezbollah group, and suck Iran into a direct conflict.
3. Economic stimulus: If China boosts its economy, oil demand could jump. A recent US Fed rate cut opens up opportunities for China to offer monetary and fiscal stimulus to its economy, and spur oil demand.

To passively invest in oil stocks, consider the iShares S&P/TSX Capped Energy Index ETF (TSX:XEG). It’s up 11% this year and pays a nice 4.3% dividend. The ETF offers exposure to 31 oil stocks but is heavily weighted on Canadian giants like Canadian Natural Resources and Suncor. The top 10 holdings comprise 86% of the portfolio.

Want a more balanced approach? The BMO Equal Weight Oil & Gas Index ETF spreads risk almost equally across 11 Canadian oil and gas companies.

Should you buy gold stocks or bet on an oil recovery?

Both gold stocks and oil plays have their pros and cons. Gold’s looking strong right now, especially if you’re worried about economic turbulence. However, they offer limited dividend yields, and performance can still be volatile.

Oil’s had a tougher time, but there are signs it could bounce back. Oil stocks could be your pick if you believe in a potential crude oil rebound price. Canadian energy stocks generally higher offer dividend yields – a good layer of passive income that augments total investment returns.

Going solo: Picking individual gold and oil stocks

ETF Whiles offer a great way to spread your risk, a more hands-on approach by picking individual stocks may be riskier but offers the potential for higher returns if you choose wisely.

For top gold stocks, big players like Barrick Gold or Agnico Eagle Mines are well-established companies with solid production track records, strong balance sheets, lower operational risk profiles, and highly experienced management teams. Just remember, their performance can be more volatile than gold prices themselves.

Canadian Natural Resources and Suncor are among the top oil stocks. They’re major players in the Canadian oil industry and often pay attractive dividends. But keep in mind that individual oil stocks can be quite sensitive to oil price swings and geopolitical events.

If you’re considering individual stocks, look at things like the company’s financial health, production cost profiles, production growth opportunities, and management quality.

Remember to diversify your investment holdings.