If you’ve been following the gold price in recent days, you might well be thinking that its reputed safe-haven qualities are pure fantasy.
In ordinary times you’d think that funds raised from mass selling on stock markets would be ploughed into hard currencies like gold. But this is clearly not any old sell-off and extreme things are happening. The FTSE 100 posted its biggest one-day fall since 1987 on Thursday but gold followed it lower. It’s now trading below the psychologically-important $1,600 per ounce marker.
This is no reflection on gold’s role as a solid safe-haven in troubled times, though. Instead, a rash of metal selling by traders needing to cover margin calls has prompted the yellow metal to reverse again. And it’s a reversal that is likely to prove very temporary.
Safe-haven star
Gold’s position as a lifeboat in troubled times is eternal. Many question why this particular commodity is in such high demand when it seems like the world is going to hell in a handcart. It has no intrinsic value, provides no income stream, and hasn’t been a widely-traded currency for centuries, they say.
None of this matters, though. Recent investment flows show that the shiny asset remains as popular now when confidence is at rock bottom as it’s ever been. It’s why prices leapt 20% in 2019 as fears over US trade wars, Brexit and rising inflation (among other things) hit fever pitch. And it’s kept going since then, hitting seven-year peaks near $1,700 per ounce this month on rising coronavirus-related fears.
Go for gold
Pandemic fears and subsequent concerns over the global economy look set to dominate investor mindsets in 2020. And many of those fears that drove gold values last year continue to rumble on in the background. So getting exposure to the metal remains a good idea, in my opinion, and one way to do this is by buying shares in mining giant Centamin.
Reflecting gold’s strong price outlook, City brokers expect earnings here to almost double in 2020. This results in a low forward price-to-earnings (P/E) ratio of 12.3 times. This is not the only reason why the Egyptian digger is such a top buy for value seekers, though — its 5.4% dividend yield’s a big attraction too.
Another top buy
I’d argue that Hochschild Mining is another top metals digger from the FTSE 250 to buy today. Sure, this particular miner specialises in hauling silver from the ground rather than gold. And it doesn’t quite offer the same sort of dividend yields as Centamin (its reading for 2020 comes out at 2.4%).
But silver is, of course, another commodity with strong safe-haven qualities. This is why City analysts expect earnings here to leap 73% this year, building upon expectations that silver values will follow gold higher again. It’s a prediction that means Hochschild trades on a low P/E multiple of 11.8 times too. And at these prices I think, like Centamin, that it’s a terrific buy.