In tense times like these it’s a great idea to have exposure to some form of safe-haven in your investment portfolio.
The classic ways of playing this game is by buying into stable, established currencies like the US dollar, snapping up US Treasury bonds, or to buy into precious metals, like gold. Other commodities, like copper, oil, or wheat, can also find their value rising given the certainty of future demand and their evergreen functionality.
By extension, those involved in the production of said commodities can also be considered decent rush-to-safety plays as well. Let’s take bullion producer Centamin (LSE: CEY), for example, whose share price spiked to its highest in almost four months in Thursday trade, on the back of fresh gains for gold.
Gold poised to gain?
The yellow metal has gained around $30 in just over a week and now sits at $1,230 per ounce as prime minister Theresa May comes back from Brussels to again sell her Brexit deal to a sceptical Palace of Westminster. And there’s plenty of reason to expect bullion to gain in the weeks and months to come, given the possibility that her accord with the EU is thrown out and the prospect of a ‘no deal’ withdrawal subsequently rears its head again.
Indeed, the boffins over at UBS recently commented that gold should average $1,300 per ounce in 2019, on the back of “volatility and growing concerns about markets moving into a later stage of the cycle.”
This all bodes well for Centamin, naturally, even though current production problems have forced it to downscale its output forecasts for 2018. It’s a great share to buy and hold forever, in my opinion, given the permanent role of gold as an established safe-haven asset. And the company’s chunky dividend yields of 3.9% and 5.1% for this year and next, respectively, provide an added incentive for buyers to get stuck in.
So what about Sirius?
Theoretically, could Sirius Minerals (LSE: SXX) be considered as a hedge against any fresh Brexit-related tension that may hit financial markets as well? Its POLY4 fertiliser product, after all, could be considered a key necessity in the years to come as part of efforts to feed the world’s growing population.
Well, no, not at the present time at least. As I’ve mentioned before, maiden production from Sirius’s Woodsmith Mine is not scheduled for the next few years, at least. And in the meantime, there’s a galaxy of problems that could emerge to rock its output timetable and put pressure on its balance sheet. Indeed, last time I covered the stock, I was detailing the development issues that forced it to hike its production cost estimates.
In addition to this, there’s no guarantee that potash prices will be anywhere near as strong as Sirius and its investors hope for, once material starts emerging from the ground. Sure, demand for fertiliser will always be there, but many of the world’s major producers are steadily ramping production of their own assets into the next decade, threatening to put the market into heavy oversupply.
Right now, Sirius Minerals has plenty of promise, but also lots and lots of pitfalls. So for the moment, I’m happy to give it a miss.