3 gold mining stocks to buy today

Gold mining stocks Polymetal (LSE: POLY), Fresnillo (LSE: FRES) and Centamin (LSE: CEY) are among the worst performers on the …

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Gold mining stocks Polymetal (LSE: POLY), Fresnillo (LSE: FRES) and Centamin (LSE: CEY) are among the worst performers on the London market in 2021 but I’m anticipating a comeback over the next year or so. 

Miners are as varied in performance this year as are the kinds of minerals they extract from the earth, and while I think the mismatch results from differing commodity price changes and company performances, gold mining stocks are by the far the laggards. 

Fresnillo was bottom of the FTSE 100 this week after falling 27% in the almost-six months to late June while Pretty Poly(metal) was eighth from bottom of the same benchmark despite falling only around 4.4%. Meanwhile, a 12.1% fall has left Centamin tenth from bottom of the FTSE 250.

All of this follows a period in which gold itself has fallen 6.37% to $1,778 per ounce and so, with the exception of Polymetal, these performances seem like an overreaction to a gold price that could soon bounce back in the direction of record highs seen above $2,000 in July 2020. 

Gold price per ounce with share prices of Polymetal, Fresnillo and Centamin.
Gold price per ounce with share prices of Polymetal, Fresnillo and Centamin.

Most compelling among reasons for a gold price recovery, I find, is central bank demand and what it potentially says about the expected direction of an often-negatively correlated U.S. Dollar. However, a seemingly downbeat outlook for the latter is also a reason on its own. 

Many central banks have grown reserve assets of late, and may have somewhat similar views on big questions like the Dollar and by implication, gold, though not all publish data as detailed as the Reserve Bank of Australia (RBA). The RBA grew FX reserves and total reserves by nearly 15% in March, with growth in those categories slowing markedly thereafter, while gold holdings have since increased at double-digit percentages, despite falling prices.

Nothing can be said for certain but this might reflect the expectation of rising gold prices from which I think Fresnillo and Centamin would benefit more than Polymetal, given the latter is less volatile than others. 

U.S. Dollar Index shown alongside gold price per ounce
U.S. Dollar Index shown alongside gold price per ounce

Russia’s Polymetal is better at mimicking gold prices, which are less volatile than many shares, potentially making it a lower-risk sector exposure, while Fresnillo is a ‘high cost producer’ and the lowest margin company in the sector whose shares tend to overreact more to movements in gold.

This makes it higher risk, but also potentially a higher reward: the shares have underperformed sector peers when falling more than 40% from above £13:00 last July, a period in which gold itself has fallen by only around 15%, but did also respond more strongly when prices were rallying last year. 

Fresnillo far outpaced gold and its peers in 2020, but I won’t be writing off Centamin as a dark horse contender for outperformance in any gold price recovery, given the debt-free company’s shares have been held back this year by one of many occasional production stoppages at its flagship mine.

Centamin also still has scope to offer a best-in-class 6% dividend yield – better explained here by G A Chester – along with magnified exposure to any gold price recovery, although it goes almost without saying that each of these shares could perform badly if gold prices fall further.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Skinner does not have a position in any shares mentioned in this article. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

With a P/E ratio of 9, is the Aviva share price a bargain?

Christopher Ruane looks at the Aviva share price and considers some strengths and weaknesses of the FTSE 100 insurance business.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
US Stock

Is it too late to buy growth stock Shopify after its 25% pop?

Up more than 40% this year, Shopify is on fire at the moment. Here, Edward Sheldon explains how he’d play…

Read more »

Investing Articles

Investors should consider buying this energy AIM stock, up 50% in the past year

AIM stock Afentra has seen a stellar price rise in 12 months to November. I believe there may be room…

Read more »

Investing Articles

2 ISA shares to consider for a large passive income!

Looking for dividend shares to buy in a Stocks and Shares ISA or Lifetime ISA? Royston Wild reveals two of…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

A Bitcoin investment that can be held inside a Stocks and Shares ISA or SIPP

UK investors can’t buy Bitcoin ETFs for their investment accounts or SIPPs due to FCA regulation. This stock could be…

Read more »

Entrepreneur on the phone.
Investing Articles

As the Vodafone share price slides 6% on lacklustre H1 results, what does the future hold?

After posting moderate results this morning, Vodafone saw its share price sink further, erasing this year's gains. Our writer looks…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing For Beginners

If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he'd invested in a FTSE tracker fund during the Covid…

Read more »

Investing Articles

2 top shares I’ve bought for my Stocks and Shares ISA in November

This writer reveals a pair of fast-growing businesses that he's recently added to his Stocks and Shares ISA for the…

Read more »