Should I buy gold to weather a no-deal Brexit?

The past few weeks have seen the price of gold climb erratically. A no-deal Brexit looming and the trade war between the US and China escalating, mean it’s troubling times for global equity markets. This is driving the popularity of gold, which has this year seen a low of £970 and a recent high of £1,204.

Is gold a good investment?

I’m not keen on storing physical items like gold, which is why I prefer investing in the stock market. Investing in gold-mining stocks gives me the prospect of higher returns, plus dividends and it helps in diversifying a portfolio.

Centamin (LSE:CEY) explores and mines for precious metals around the world. It is the biggest of such miners, with a market cap close to £1.5bn and an excellent dividend yield of 4.39%. It released better than expected half-year results last week and saw its shares climb nearly 10% on the day. The news included raising its total dividend payout to $46.2m ($0.04 per share) and reiteration it will meet its full-year guidance on output and costs. It has a trailing price-to-earnings ratio (P/E) of 28 and earnings-per-share (EPS) of $0.05 (4.1p). Its most noteworthy asset, the Sukari gold mine in Egypt, saw an 8% rise in production year-on-year, which is news investors have been waiting for. Its shares have climbed 13.5% over the past year.

Less positive is the 26% drop in overall pre-tax profit to $59.6m, while revenue fell 3% as sales of gold slipped. Adjusted free cash flow fell 1% to $35.7m, but is expected to increase in the second half of the year. As of 30 June, the company had no debt, no hedging and cash and liquid assets stood at $326.6m. The share price will inevitably rise and fall with the gold price, but Centamin is a strong company and analysts are predicting decent growth prospects over the next couple of years. I consider it a Buy. 

Russia focus

Trans-Siberian Gold (LSE:TSG) is focused on Russia and also released positive results last week, thanks to a year-on-year increase in production for the first half of 2019, creating record revenue of 8.6% to $30m for the period. The company has an appealing P/E of 7.7 and EPS of $0.113 (9.26p). Its low P/E is matched by a fairly low dividend yield of 1.58% but this may be topped up with a 4.6% special dividend.

TSG has good financial health though, besides a history of performance and a promising-looking future, with gold production in line with guidance. Its profit margin looks good at 20.8%, significantly higher than Centamin’s 9%. The board announced 26% growth in gold production year-on-year and average gold grades 39% higher. The miner also announced its production update at the Asacha Gold Mine for Q2 in which there was a 33% increase in average gold grade, and gold revenue rising 11.5% to $13.28m. Future production is still in line with its 2019 production guidance range of 40,000-44,000 ounces. The company recently hired a new Mine Manager at Asacha and new CFO Sergey Kryazhevskih who comes from Russian gold producer JSC Pavlik. I consider it riskier, but a Buy nevertheless. 

Gold-mining is a volatile business and profits can be volatile too. Currency rates, local political tensions and cost of production all contribute to the price of gold. Mining shares are riskier than other FTSE stocks so it’s important to keep this in mind. But I think gold stocks could help weather a no-deal Brexit.