By Royston Wild
Gold prices have stepped back into the $1,700 per ounce marker of late as risk appetite has improved across financial markets. Getting exposure to the precious commodity, however, remains a great idea in my book. Prices of the yellow metal look likely to perform strongly both in the near term and the next decade. And retail sales data released Tuesday reinforces my point.
According to The Pure Gold Company, demand for its physical bars and coins has ballooned 987% during the past seven days from the weekly average during the past year. It comes on top of news last week showing how inflows into gold-backed exchange-traded funds (ETFs) are detonating too.
It’s not just rolling fears over the coronavirus, or the recent explosion of civil rights protests across the globe, that are causing investors to duck for cover with the safe-haven commodity. Chief executive of the gold investment firm, Josh Saul, comments that “the pre-Covid-19 uncertainties, including Brexit, geopolitical tensions, the US elections and global trade issues, continue to exert pressure on economies around the world” too.
These are issues, like the devaluation of paper currencies through frenzied money printing, that in my opinion should keep gold and gold-related assets well bought for much of the new decade.
Go For Gold (Stocks)
Taking the plunge with gold stocks is one great way to play the metal price.
Petropavlovsk, for instance, is a gold producer whose share price has exploded 230% during the past year. It’s been swept higher by the yellow metal striking repeated multi-year peaks (the latest of which sits around $1,765 per ounce struck a month ago). Yet this Russian mining giant still provides excellent value for money, its shares trading on a forward price-to-earnings (P/E) ratio of 6 times.
City analysts here expect earnings to rocket 433% in 2020, but Petropavlovsk is no flash in the pan. Bottom-line growth is tipped to cool next year but an anticipated 41% advance isn’t to be sniffed at.
Production Is Powering Higher
This FTSE 250 firm has been making the headlines in recent days. According to the Daily Telegraph (paywall) Petropavlovsk is exploring a merger with UGC, another Russian mining play, though the former has since dismissed claims that a deal is in the offing. Such an accord would certainly make a lot of strategic sense, so expect the rumour mill to crank back into gear before long.
Petropavlovsk has also been making news for other reasons. It announced in late May that it remained on course to pull between 620,000 ounces and 720,000 ounces of the shiny metal out of the ground in 2020. This follows the successful production of 186,200 ounces of gold in the first quarter of the year, up 73% on an annual basis.
The company’s bright earnings forecasts reflect the bright outlook for gold prices as well as the opening of its pressure oxidation facility (or ‘POX Hub’) in 2018. Output here is being steadily ramped up and will allow Petropavlovsk to fully exploit the rising gold price.