The gold price explosion of 2019 has commanded plenty of column inches here at The Motley Fool as writers have revealed a variety of great ways that investors can play booming bullion.
Many of us, myself included, believe that the outlook for metal values remains pretty bright for 2020 and GFMS data on gold demand this week shows why. According to the consultancy, total holdings in gold-backed exchange-traded funds (ETFs) rose by 350 tonnes in the nine months to September. And rampant demand in the third quarter, a period in which frenzied ETF buying added another 247 tonnes to the total, was chiefly responsible for this hefty uplift.
Cameron Alexander, director of precious metals research at market data provider Refinitiv, comments that “renewed economic concerns, geopolitical tensions as well as rising threat to the global trade outlook amidst the prolonged trade disputes between the US and its major trade partners all contributed to this hike in value.”
He added that “a visible shift among the world’s key central banks towards a more accommodative monetary policy this year has seen investors flee back to safety, making gold shine even brighter.”
Go for gold!
It doesn’t matter that high prices mean that demand for gold jewellery is sinking (down 26% in the third quarter, GFMS says). Safe-haven purchasing from investors remains so robust that metal prices remain within spitting distance of those multi-year tops at $1,510 per ounce, and the same factors that propelled bullion demand in the third quarter remain in play today.
Geopolitical issues like Brexit, US President Trump’s impeachment enquiry, fresh military action in the Middle East, and tension over US-Chinese trade talks continue to keep gold sales afloat. And in 2020 there’s a multitude of other political factors that could bolster demand for the flight-to-safety asset, from the US presidential election in the autumn to the possibility that Trump will reignite trade tensions with the European Union.
With key economic gauges across Asia, Latin America, and Europe heading south as we head into the new year, and central banks continuing to aggressively cut benchmark rates (Brazil joined the US in slashing interest rates in recent days) it looks as if 2020 could prove another explosive period for gold prices.
4% dividend yields
I believe that one great way to play this favourable environment would be by buying shares in Highland Gold Mining (LSE: HGM) as it offers plenty for growth and income investors to sink their teeth into.
Russia-based Highland is expected to follow a 72% earnings rise this year with an extra 10% rise in 2020. The bubbly gold price outlook isn’t the only reason why City brokers are so bullish, though, as the AIM-quoted business is also witnessing a steady rise in production levels (these rose 7% in the nine months to September, to 217,298 gold equivalent ounces).
At current prices Highland carries a forward price-to-earnings ratio of 9.6 times, too, making it a brilliant value pick. As I said, the mining giant offers reasons for dividend chasers to cheer, too, thanks to its 4% yield, one which smashes the UK mid-cap average of 3.3%.
In truth there’s many great gold shares crying out for investment right now but I believe Highland is one of the best.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019