It’s clear that investors should be prepared for extreme volatility in financial markets in 2020. Issues like Brexit, US presidential elections (and impeachment enquiries), tetchy trade talks between Washington and Beijing, and a clear downturn in economic data across Europe and Asia are all things we need to be prepared for as we move into the new year.
I don’t want to drag the mood down but it’s clearly sensible to be prepared for a meltdown in equity markets by buying into some classic, safe havens. Gold and silver are perhaps the most obvious of these flight-to-safety assets, but rather than buying up ingots, coins, or a metal-backed financial instrument like an exchange-traded fund (ETF) that tracks price movements in the underlying asset, why not buy into a mining company instead, a strategy which provides the added benefit of dividend income?
It’s also worth remembering that traditional, centuries-old physical currency precious metals stand to gain from more central bank rate cutting in 2020, as the value of paper currencies comes under increased scrutiny. Of particular interest will be the actions of the US Federal Reserve as extra rate reductions would heap pressure on the US dollar, making it cheaper to buy greenback-denominated commodities like gold and silver and thus giving them extra scope to rise.
Growth + dividends
Fresnillo (LSE: FRES) is one such stock I’d recommend buying as January approaches. Its share price has risen 17% so far in 2019, and while it’s slid back more recently as silver prices have receded, I reckon this provides a solid dip buying opportunity.
Indeed, at current prices it could be considered too good to pass up on. Thanks to City expectations of a 36% earnings rise in 2020, the FTSE 100 firm trades on a forward price-to-earnings growth (PEG) ratio of just 0.7, a reading which sits inside the widely-regarded ‘bargain’ benchmark of 1 and below.
These bright profits estimates lead to expectations of more meaty dividend growth as well. A predicted annual dividend of 13.3 US cents per share for the outgoing year is anticipated to surge to 18.8 cents. And this leads to a handy 2.5% inflation yield, a reading that outstrips the best interest rates of Cash ISAs, those other havens in turbulent macroeconomic and geopolitical times, by around a full percentage point.
Is it time to surf silver?
Silver prices have fallen some way from the three-year peaks of around $19.30 per ounce punched back in October, and they were last clinging on to the psychologically critical $17 marker.
Despite sinking below this level momentarily this week it’s clung on around that level, mirroring gold’s own resilience above the $1,460 per ounce marker. Meanwhile, holdings in silver-backed ETFs may have retreated from their record peaks of 638m tonnes, but flows remain broadly stable despite those wild price changes.
It could be inferred, then, that the investment community is just pausing for breath before the next upswing in precious metals prices. And as I explained above, I think there’s plenty of scope for meaty rises in the new year.
