More and more young people are investing their money, rather than letting inflation erode the value of their savings. Yesterday the Royal Mint released a statement on the burgeoning interest in buying gold amongst young investors. Historically, gold is one of the safest investments, and seen as a worthwhile hedge against inflation. Moreover, the price of gold is near record highs because of fears of the pandemic’s effect on the global economy. Rather than buying physical gold, I prefer to invest in gold stocks. These carry more risk, but if the miners do well, the rewards can be far higher.
The safest bet
Barrick Gold (NYSE: GOLD) is one of the largest gold miners in the world. It owns a majority share of the Nevada Gold Mines, the largest gold-producing mine in the world. The miner has completely cleared its $13bn of debt since 2013 and has assets of $5.2bn in cash and a $3bn line of credit. The miner has even recommended $750m of surplus cash be returned to shareholders this year. In addition it pays out a small dividend of 1.7%.
Its share price is now at $20.90, down from a high of $29.75 in September 2020. During the market crash in March last year, Barrick was one of the least affected stocks.
The main risk to Barrick’s share price is a strong global post-pandemic economic recovery. This miner seems too big to fail, but if worldwide economies improve and inflation risks subside, investors may pull money from gold stocks into more lucrative options.
More adventurous gold stock
Centamin (LSE: CEY) has experienced a volatile couple of years. In April 2019, the share price was at 80p; in August 2020, it was at 220p. It is currently at 104p. The company operates the Sukari gold mine in Egypt, and expects to generate over 400,000 ounces of gold this year. Centamin is promising a 6.1% dividend return this year, with a dividend policy that heavily favours investors. It has no debt, and $331m in liquid assets that will help it to cope with fluctuations in the gold spot price. It also has big plans to expand African mining operations over the next few years.
The main concerns are the share price volatility, political instability in Egypt, and the risks associated with the development of new mining assets.
Hope to strike gold
Scotgold Resources (LSE: SGZ) could be a potential goldmine, but comes with significant risk. Its share price fell from a high of 151p in October last year to just 61p today, a reduction of almost two thirds. Buying in at this price point could be attractive.
I think the success of the company depends on the Cononish gold mine in Scotland. CEO Phil Day recently stated that “the potential is huge – that there is gold everywhere.” The company aims to mine 10,000 ounces of gold this year, and more than double production in 2022. It is planning to expand operations across central Scotland over the next decade. I would only invest a small amount as this is a highly speculative stock that depends on the success of one risky mining operation. However, early investors could make big returns on this gold stock if the mine succeeds.
