The reason I wanted to review both the gold price and the Polymetal International (LSE: POLY) share price in the same piece is because investors think they’re closely correlated. Polymetal is a rare case of being a gold miner listed on the FTSE 100. The firm does mine other precious metals such as silver and copper, but the gold mines are what attract a lot of retail investors. By proxy, it’s an easy way to get some exposure to the gold price.Â
What’s the story so far this year?
At the start of 2020, the gold price was trading around $1,500 per oz. It had already seen double-digit gains from 2019 as investors bought it as a hedge against the longest equity bull market in history. But 2020 so far has seen gains well beyond that. The gold price is up just under 30%, making new all-time highs along the way in breaking $2,000 per oz. This can be primarily put down to the impact of the coronavirus. Investors pulled money out of the stock market and pushed it into gold as a safe haven.
For the Polymetal share price, we’ve seen a similar move higher. The share price is up 64% this year! Obviously the increased gold price has helped tremendously. But there have been other factors at work here. The lockdown restrictions imposed in Russia have been significantly lighter than we’ve experienced in the UK. So output in Q1 and Q2 has been relatively unaffected. In a recent trading statement, the firm noted that gold production actually increased by 2% year-on-year. Q2 revenue increased 30%, which helped the share price to outperform holding gold alone.
Where next for the Polymetal share price?
Here’s my contrarian opinion. I think the gold price is actually going to fall for the rest of the year. But I still see upside for the Polymetal share price.
Let’s take gold first. The move to all-time highs recently comes as coronavirus new infections and deaths in developed economies have slowed. With the exception of the United States, the general sentiment I’m reading is that the virus is under control (for now). If this continues, I expect investors to sell out of gold and go into riskier assets. They don’t have as great a need to protect themselves via gold as a safe haven. It doesn’t pay any interest, and justifying buying into gold at such elevated levels is a tough task.
For Polymetal, I don’t see this as a complete negative. Polymetal doesn’t just rely on gold to make money. Further, so far this year investors have sold stocks and bought gold. If investors sell gold, they’ll most likely buy back into stocks. So the Polymetal share price (along with others) should see a natural bump from this inflow. Added to this is the dividend that the firm has paid out recently. The dividend yield sits at 2.38%, but this is still 2.38% more than you get from holding gold. So investors who still want exposure to gold may buy the stock rather than physical gold to benefit from this income stream.
In my eyes, the outlook is positive for the Polymetal share price, and I would look to add it to my portfolio.