When investors fret about the state of the economy, or the short-term future of shares, they often push up the price of what are called safe-haven assets. One notable example of such assets is gold. After 2008, the price of gold rose sharply as money poured into the precious metal when the prices of shares were falling.Â
I’d personally prefer to stay invested in the stock market and ride the lows and the highs. But given that in reality markets are prone to irrational fears, one way to take advantage of the panic of others, is I think to invest either directly in gold mining companies, or to invest in a fund or tracker that will rise at times when investors buy gold.
With a no-deal Brexit still on the table and wider economic concerns rising, now could be an ideal time to invest in gold.
The mining company
If you want to diversify your portfolio with gold then I’d suggest looking at FTSE 250 miner Centamin (LSE: CEY). Its principal asset is the Sukari Gold Mine which began production in 2009 and is the first large-scale modern gold mine in Egypt. It produces around 500,000 ounces per annum.
The miner is also undertaking exploration projects in the Ivory Coast and Burkina Faso, which could add to its pipeline in the future.
Centamin has no debt and around $327m in cash, so financially it’s very stable for a natural resources company. I’d certainly see it as far less risky than many of the smaller gold miners and therefore a better way to diversify an investment portfolio.
Production
The second quarter of 2019 saw gold production increase by 27% from the year before. For the first half of 2019, the rise in production, against 2018, was 8% to 234,096 ounces. Unfortunately, the costs associated with mining also went up as well and the price achieved was up only 1% in the first six months.
The most recent six months haven’t been the best, at least in terms of financial performance, as profit before tax fell 26%. However, the miner did give guidance that it expects production to be weighted towards the second half. It expects the split between H1 and H2 to be 45%:55%.
The miner has good control of costs generally and good profitability as a result. Its costs per unit are around $982 per ounce. In the last half, it was able to sell gold on average for $1,305 per ounce.
With the price of gold on an upward trend – it has risen from $1,385 on July 1 to around $1,489 now – there’s plenty of scope for Centamin to sell more gold at a higher price and therefore make more profit. Brexit may well help drive the gold price even higher than where it currently is.
Other opportunities to strike gold
Blackrock World Mining Trust is an investment trust trading at a 14.5% discount to its net asset value. It yields around 5% and is a way for investors to get exposure to more natural resources than just gold, and limit their exposure to one company, in what is a notoriously cyclical industry.
Actively managed investment funds and tracker funds, known often as ETFs, are another way to gain exposure to gold.