The gold price is rallying at the moment. It sits at $2,125 an oz, close to the all-time high in April last year of $2,135. Over the past year it’s up 15%. This is a big benefit for some UK stocks that either directly or indirectly are influenced by gold.
Here are two that I think could rally going forward.
Why gold could keep going
I believe the gold price can continue to rise this year. One reason for this is that gold doesn’t pay interest. So it typically performs better when interest rates are falling. Given that I think major central banks will cut rates this year, this should help to boost the gold price.
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Another reason why gold could rally is it’s regarded as a safe haven asset. US tech stocks are at all-time highs, with some saying it’s starting to look like a bubble. If the bubble pops and people get spooked, I think gold could soar.
A small-cap option
Shanta Gold (LSE:SHG) is an AIM-listed UK share. But the company itself is an East Africa-focused gold producer, developer and explorer.
Given a market-cap of just £140m, it’s a small UK stock that could really take off if the rally in the gold price continues. Over the past year the share price is up 18%, almost mimicking the move in gold.
Unlike some other small commodity companies, Shanta Gold has working mines that generate gold. In 2023, it produced 71,248 gold ounces from the New Luika mine, with an average selling price of $1,948. If we assume that 2024 yields the same production figures, but can have an average selling price of $2,100, this would boost revenue by an additional 7.8%.
Given the ability for production to increase from other projects going forward, I see a lot of potential for the stock to benefit from higher gold prices.
A risk is that the share price can be distorted by speculative short-term traders reacting to new project news. This means high volatility, which can make it hard to cut through the noise.
A heavy hitter
At the other end of the size scale is Centamin (LSE:CEY). The FTSE 250-listed firm has a market-cap of £1.13bn. Over the past year the share price has fallen 9%.
The firm operates the Sukari Gold Mine in Egypt and produced 450,058 ounces of gold in 2023. Interestingly, the company reports the all-in sustaining cost of operating, which last year was set at $1,399 an oz.
Therefore, I expect the business to flag up in the next quarterly report the benefit of a gold price well above $2,000. This boost to profit margins should aid profitability.
For sustainability, the gold mine has an estimated 6 million ounces of unmined gold mineral reserves. Certainly, this bodes well for the future. However, one risk is that the business isn’t a diversified miner. Therefore, the lack of other commodity production could be a concern for those who want to purchase a balanced mining stock.
Ultimately, based on my view on gold, I’m thinking about adding a small position in both companies.
