Is it time to invest in gold mining stocks?

By Larissa Fernand |  02-09-20 | 
 
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About the Author
Larissa Fernand is Website Editor for Morningstar.in. She would like to hear from you and welcomes your feedback.

Gold prices slipped as the dollar rebounded on the back of positive U.S. economic data.

As mentioned in the Wall Street Journal recently, gold needs trouble to prosper. So it was not very surprising in retrospect to see such a spectacular rally against the backdrop of escalating U.S.-China tensions, a global pandemic, a volatile equity market when the lockdown was announced, enduring fears about the ongoing economic impact, and falling interest rates.

While many believe that the rally still has a lot of steam, there has been renewed interest in gold mining stocks after Berkshire Hathaway invested in Barrick Gold.

Adrian Day, chief executive officer of Adrian Day Asset Management, has said that while gold prices hit all-time highs in early August, the value of mining companies are still well below where they were in the last bull run in 2011.

According to him, it takes a long time for these prices to catch up. So if anyone thinks that they have missed the boat on the gold stocks, they are wrong. “The prices are not as good today as they were six months ago or a year ago, but they are still very, very undervalued. That applies to the senior miners, which are obviously always the first to move.”

Peter Marrone, executive chairman of Yamana Gold, also shared similar views. According to him, “this is the time to be invested in equities, more than the time to be invested in the metal itself. Admittedly, there’s more operational issue that one needs to be sensitive to when investing in equities, but my view torque really is with equities now rather than with the metal itself.”

GOLD MINING STOCKS

The gold mining stock that Warren Buffett invested in

While many believe that Warren Buffett has changed his stance on gold, it is worth noting that he did not purchase gold but picked up a gold mining company that pays dividends. Our analyst shares some pointers on Barrick Gold.

Why investing in gold mining stocks is not easy

Investing in gold mining stocks is fraught with uncertainty. there are multiple factors that tend to play havoc with the stock price; much more than what regular businesses face. But if you possess the stomach for a rocky ride and the fortitude to break away from the herd, it could be a rewarding investment.

How Indians can invest in gold mining stocks

DSP World Gold Fund is a feeder fund, that feeds into BlackRock Global Funds - World Gold Fund. The fund predominantly invests in gold mining stocks, with a small exposure to silver, platinum, copper, nickel and diamond stocks. These mining companies are listed across Canada, U.S., Australia and the U.K. Morningstar analyst and associate director Peter Brunt did a detailed analysis, the observations of which are mentioned here.

BEHAVIOURAL FINANCE

The psychology of investing in gold

The perception of an investor when he or she buys gold could be radically different from the frame of mind when other investments are considered. If you are considering buying gold, ask yourself what the narrative is that is framing your point of reference. Here are some questions to help you arrive at a logical decision.

GOLD AS AN INVESTMENT

Why gold is not a great investment

Are you buying it because it is a hedge against inflation or against currency depreciation? Or, because interest rates are falling? It could also be a great diversifier. Gold can have a place in your portfolio if you know exactly what it is for. Don’t blindly rush into it.

What gold is NOT

While I always believed gold is a currency, Michael Coop, Head of Multi Asset Portfolio Management (EMEA) at Morningstar Investment Management, rightly points out that a lot of pretty extreme things would need to play out for people to abandon their own currency and use gold instead. It’s a low probability game. Here he busts 3 myths of gold.

Should you invest in gold?

The run-up in the price of gold has attracted investors. Some are of the opinion that the upside is still quite significant. Others feel that it is a bit too late to jump on to the bandwagon. With the help of data, we present you with pointers to help resolve the issue.

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Ramji POrwal
Sep 4 2020 07:13 PM
 This is quite comprehensive, My two cents that if people are still chasing the rally they should do so with moderate expectation as the prices have gone up too fast too soon.

Agree that the gold cycle of returns is still have some legs but expecting 20% growth now is not going to be fulfilled easily. https://eduform.in/2020/06/28/gold-hits-life-time-high-have-you-missed-the-rally/
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