2 TSX Gold Miner Stocks to Buy in 2022 in Case of a Market Correction

Gold miner stocks could potentially provide some decent downside protection.

| More on:

When it comes to mitigating the risk of a market correction, we need to look for assets that have a slight to moderate negative correlation with our stock portfolio. That is, when our stocks zig, they zag. This is called a hedge. Sometimes, minimizing large drawdowns is just as important as chasing gains.

We’re also hoping that it goes up slightly over time so as to not lose value, but, more importantly, it should function as a parachute in times of crisis. When the market tanks, we want it to go up in value, so we can sell it at a profit and use the proceeds to rebalance into our stock positions at a low price.

For many investors, this meant a healthy allocation to bonds in their portfolios. However, persistently high inflation and the prospect of multiple interest rate hikes in 2022 have walloped both stocks and bonds, with high valuation growth stocks and long duration bonds incurring the largest losses. So what can investors do now?

Can gold work?

When bonds no longer protect us as much in a crash, we have to seek alternatives. An option here is gold. Gold has a low correlation to both stocks and bonds and high volatility, making it an excellent diversifier for portfolios. However, there are some issues with gold. Most notably, it has zero expected real return over time.

An ounce of gold 100 years from now will still be an ounce. A stock can spit out dividends or grow as the underlying company does, and bonds pay coupons and the principal eventually. Gold just sits there. Therefore, it’s just good at keeping its value. Its price fluctuations are due to speculation, nothing more.

A better hedge with a more positive carry are gold miner stocks. These are shares of publicly traded companies that engage in the exploration, development, and processing of gold. Gold miner stocks are unique in that they’re affected by both equity market risk and the price of gold. This trait gives them some downside protection during a correction.

Can gold miners protect us?

For a thought exercise, Iet’s see how the two largest TSX gold miners, Barrick Gold (TSX:ABX)(NYSE:GOLD) and Franco-Nevada (TSX:FNV)(NYSE:FNV) performed versus the iShares S&P/TSX 60 Index ETF (TSX:XIU) during various historical market crashes.

A word of caution: the backtest results provide below are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Hypothetical returns do not reflect trading costs, transaction fees, or actual taxes due on investment returns.

First up is the great financial crisis of 2008. We see that during this time, both ABX and FNV were in the green, with gains of 8.32% and 42.44% respectively, versus the -31.09% loss XIU incurred.

Next up was the March 2020 COVID-19 crash. Once again, ABX and FNV beat XIU with gains of 21.81% and 19.99% respectively, despite the latter staging a whipsaw recovery to end the year at 5.27%.

The Foolish takeaway

The low negative beta of ABX and FNV, coupled with their non-correlation with U.S. markets make both stocks a decent hedge against a market correction. A small allocation could be a good alternative to bullion or gold ETFs.

During a correction, the rise in share price can be sold at a profit and used to tactically re-balance into other equities when they are low. Holding this stock over the long term may also smooth out your returns by reducing volatility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »