Gold – 15% up on a year ago – is for war. When governments take up arms, or send arms indirectly to their allies, the price of the yellow metal usually rises. And attacks close to nuclear power plants don’t help, either.
Markets are in turmoil. Further sanctions anxiety is driving natural resource markets – ‘Russia risk’. Inflation, another gold price driver, is just about everywhere.
But the mining sector is diverse and the stock prices of gold mining companies don’t rise in synch with the gold price. Long-term fundamentals and differing margin pressures are highly diverse for gold miners also.
How do gold and silver miners shine? Here’s five
Barrick Gold (ABX)– widely flung with 18,000-plus staff its share price has surged 25% in the last month, tracking the gold spot price closely, which did not happen in 2021.
Barrick reported last month that total production was consistent with previous company guidance and also confirmed a share buyback up to $1bn.
Is NYSE-listed Barrick a buy? The Canadian miner has raised dividends and seen efficient management of costs. Six out of 10 analysts surveyed by MarketBeat recommended a ‘buy’ for Barrick on 23 February.
Fresnillo (FRES)– listed in London though its HQ is in Mexico City. It reported higher profits and revenues today but chief executive Octavio Alvidrez warned that many “on-going challengers” were outside its control, including inflation costs and new Covid variants.
While Fresnillo shares are up more than 6.5% at 789.80p this morning they remain more than 12% lower over a full year. Over a month the Mexican miner is up more than 25%.
Polymetal International (POLY) – the Anglo-Russian gold player has been cratered by the Ukrainian crisis. Its shares are down almost 86% in the last month and more than 40% down in the last five days.
Polymetal is due to kicked out of the FTSE 100 along with Evraz and its boardroom exodus is continuing – all its non-exec directors have quit.
Its shares sunk a further 6.7% today. A major shareholder, the Norwegian sovereign wealth fund, has also dumped the stock. However Polymetal has been a consistent performer in the past.
Hochschild Mining (HOC) – this FTSE 250 mining stock has operations across much of South America. On 23 February it claimed in preliminary results a strong balance sheet and a rise in revenues from $621.8m to $811m; profits were also up sharply.
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But the market was underwhelmed. Peruvian licence worries have been a major concern in the past; a new left-leaning President, Pedro Castillo, is in situ (he has proposed new royalties on miners previously).
But JP Morgan remains positive on the stock. Hochschild shares surged more than 11% higher this morning to 138.40p.
Centamin (CEY)– the Africa-focused gold miner is listed in Toronto and London. Its flagship asset is the the Egyptian Sukari gold mine. The balance sheet is debt-free and the company is encouraged by its African prospects.
Despite gold surges today from other miners Centamin investors made do with a 0.60% gain to 106.81p though the stock is up 15% in the last month.
Over the last year it has risen just 0.38%. However a 5.2% dividend for this year looks attractive. A 5.3% dividend yield is highlighted for 2023.
What’s driving gold interest?
- Central banks and quantitive easing
- Social unrest
All three of the above drivers are helping support gold values. However, economics consultancy Capital Economics forecasts that gold will slump back to $1,600 by the end of this year.
Russia, it thinks, could be forced to offload its bullion reserves. But it’s not a given that such a move could force the gold price down.
Good to know: gold is indestructible but the price is not – go careful
- Gold is a relatively illiquid asset, which is why it can – also – fall heavily and quickly.
- In 2021 the US dollar gold price dipped around 4% but the average price for the year of US$1,799/oz was 2% higher than 2020. The price, says the Gold Council, “was relatively steady, holding within a broad range for much of the year”
- Many gold companies are tiny – meaning buying in heavily can send their share price soaring. The risks are, obviously, supercharged when trading
- Common to all players are high risk levels – the challenge of pulling gold and silver out of the ground is immense