Inflation fears have dominated headlines for some time now. As a large stimulus plan is rolled out in the US, with rising prices, unemployment and growing debt, market analysts have warned investors that inflation could spoil gains, pointing towards a rise in hedging assets to counter risk.
According to the Financial Times, in the twelve months to April 2021, consumer prices rose at their fastest pace in over ten years, which experts predict will increase even more to reach above three per cent. Investors fear the pressure of re-assessing their portfolio before it is too late and include inflation hedging strategies. Here, we won’t discuss bitcoin and cyrptocurrencies (also considered a way to diversify portfolios in times of weaking fiat currencies) but will analyse investment in precious metals.
The traditional inflation hedge favourite is gold.
Early last week the annual report by Metals Focus showed that analysts predict gold prices to hover around $1,820 an ounce this year, up three per cent from last year’s average. In an upcoming FinancialFox interview, gold market specialist Angelos Damaskos, CEO at Sector Investment Managers Ltd, expects a rather bullish season until the year end: He believes we could see a new price record by the end of this year.
In reference to the current macroeconomic conditions — huge debt levels and low interest rates — Angelos says that “historically, these are the conditions that push gold prices up.”
In these circumstances, how can investors gain exposure to gold?
A balanced portfolio is key, says Angelos, suggesting both physical and paper gold: bullion, ETFs and shares in gold mining companies.
The best-value bullion option is bars rather than coins, since coins have more premiums and ETFs should be directly linked to the gold price. As for gold mining, investors should research both major and junior miners, depending on their strategy. For a more adventurous, riskier but high-reward approach, the focus is on junior companies; Angelos has a preference for well-managed, selected developers or producers which operate in safe jurisdictions and boast interesting gold assets.
While major mining companies may have stronger balance sheets, small caps have greater focus on operation, which means more gains in the profit margin when gold prices increase. This is called “operational gearing”. They can also become take-over targets by bigger mining companies which have cash to invest and are looking for opportunities.
Angelos Damaskos will be sharing tips and insights about the gold market in our upcoming special episode. Subscribe to our YouTube channel so you don’t miss out.
Investing in Gold Stocks
Condor Gold (LSE: CNR, TSE: COG), undervalued gold opportunity gears towards production
More than just investing directly in gold, investment in gold miners could be an excellent way of reaping long-term gains over the gold price movement. Gold producers are gaining favour in various investment strategies which look at equities as a means to gain multiple returns. Nevertheless, thorough research is required to identify the unicorns. London- and Toronto-listed junior mining company Condor Gold (LON:CNR; TSX:COG) has caught the eye of investors as it makes steady progress and prepares for production at its flagship project La India in Nicaragua.
During Q1 2021, Condor made significant progress in its operations, attracting increased attention. Among the company’s milestones was the conclusion of ground investigation drilling, the commencement of drilling on Cacao Vein with the objective of demonstrating the potential upside of La India, and the successful raising of £4 million.
Throughout last year, Condor Gold saw its share price more than double — from 20p to 50p — yet it is considered by many mining to be undervalued compared to its American and Canadian peers.
Condor Gold boasts a fully permitted project to construct and operate a processing plant with a capacity of up to 2,800 tonnes per day. Production at La India is targeted at 120,000 oz gold per annum from open-pit material for 7 years, with an additional underground resource of 1.2 million oz of gold within a potential 5 million oz gold district.
According to the latest presentation data from June 2021 the company presents strong economics with $35.00 per indicated + inferred resource oz gold in the ground vs current $1,900 per oz gold price (per lme.com as of 31 May 2021); $690 all-in sustaining cash cost (lower quartile globally) and boasts $11M cash after Placement in February 2021.
Mark Child, Chairman and CEO of Condor Gold says the time is right for investing in small cap miners. Junior miners like Condor give investors higher leverage on gold prices and, considering that gold prices are set to remain high over the next three to five years, investing in producers now is a good deal.
Beyond this, Mark sees a shortage of gold supply in the near and medium terms, which means that gold producers are very well positioned to take advantage of this shift in the market. “There is a gold shortage on the way. There has not been substantial discovery of gold over the past decade, which results in supply constraints and higher prices,” says Mark.
Mark Child will be talking about Condor Gold operations in Nicaragua in our upcoming #FinancialFox episode about gold.
Not only gold: Other metals set to gain
Gold may be the apple of investors’ eyes but the whole metal sector is set to make substantial gains in the near future. This is due not only to rising inflation, but also to increasing industrial use pushing up demand for other precious and base metals in the advent of a greener economy and the push to electrify vehicles.
“We see potential for a multi-decade commodity cycle ahead, driven by decarbonisation of the global economy and shift to cleaner energy,” said Tal Lomnitzer, a senior fund manager at Janus Henderson, to the FT. The FT reports that, in order to make the transition to a net zero carbon economy in the next 30 years, the market size of minerals and metals such as copper, cobalt and rare earth will have to grow nearly sevenfold in the next decade.
British entrepreneur and investor Clem Chambers also foresees strong gold performance (potentially $3,000), but he also recommends that investors investigate platinum, another metal that works as an inflation hedge but also benefits from industrial usage. Also, considering the metal is a key element for clean energy infrastructure such as hydrogen, the platinum market is set to heat up in the near future.
Watch Clem’s interview for Cambridge House
Among the metals set to make the most gains are copper and silver. Analysts are starting to say that copper is the new oil, considering that it is a key component in electrical mechanisms. Silver, more than performing as a precious metal safe-haven asset, is also expected to see a surge in industrial demand. A study said that the price of silver could increase up to 30 per cent in 2021.
Watch our #FinancialFox episode with Ian Williams, CEO of Charteris Treasury about the silver boom
Be sure to follow us on social media @cassiopeia_ltd to keep up with more news and updates in this exciting sector, and don’t forget to subscribe to our channel to hear about further upcoming interviews on FinancialFox.