After witnessing muted growth for years, safe-haven yellow metal seems to have created a fortune for gold investors and traders in 2019. After a spectacular return it recorded between 2007 to 2012, (during which gold prices delivered a return in excess of 150% and registered a lifetime high of $1,911.60/oz in September 2011) it started receding since 2012, once after the global economy started getting back in shape from terminal impacts of 2008 financial crisis. Since 2012, the global equity market recorded steady growth and yields were considerably high on US Treasury Bonds. Which acted as road blocker for the safe haven, as investors were getting a better return on their investment portfolio comprised of bonds and equities.
However, things again started moving in the opposite direction since mid-2018, and there were plenty of reasons behind the slowdown of the global economy since mid-2018. Major ones being the US-China trade escalation, Brexit, higher crude oil prices and many others.
The prevailing situation brought back gold into the focus again and it gained a lot of traction within the investment community since late 2018 to the third quarter of 2019. Notably, post-June 2019, gold created a fortune for many investors and traders amid heightened volatility in the equity markets, bond markets and oil prices, which sent gold prices to its peak level of $1571.70/oz in September 2019.
However, after US-China announced a Phase-1 trade negotiation, fear of no-deal Brexit went off the table, and the difference between short-term bond yields and long-term bond yields expanded, it boosted the morale of the investors and traders that we are far from any recession in near-term and things would change soon for better.
This again led investors to binge on equity and induced sell-off in gold post September 2019, and at the time of writing as on November 28, 2019, Gold Futures traded approximately 7% lower from its September 2019 peak level of $1571.70/oz to $1463.50/oz, however, still the precious metal was up by around 15% on a YoY basis.
However, a large set of market analysts estimates that gold prices will sustain above $1,400/oz level for an extended period of time and could again move above $1,500/oz level in 2020 if things do not go as per the wider market assumptions.
The easing interest rates scenario around the world would will help gold to remain in traction. It’s a well-known fact that gold do not generate any recurring income, and that's why in a higher interest rate environment, investors like to park their money in fixed income securities to generate higher interest income. Well if interest rate come down, this means your money is going to earn less than what it uses to earn on higher interest rates. This makes gold much more attractive. Also, in near-term, any rate hike from the US Federal Reserve is not expected in order to bring back growth cycle into the global economy or to boost investments.
Let’s look at the four London Stock Exchange-traded gold mining companies: POLY, FRES, CEY, and POG
Polymetal International Plc (LON: POLY)
London Stock Exchange-traded Polymetal International Plc is one of the UK’s largest precious metal and mining company in terms of market capitalisation. The outstanding market capitalisation of the company stood at £5.45bn, which ranks it among the large-cap companies listed and traded on the LSE. Also, it is a constituent company of the FTSE 100 index.
During the third quarter, the group's gold production increased by 13% to 402/Koz, and on a 9M basis, gold production surged by 25% to 1,005/Koz.
Supported by a decent surge in gold production and gold prices, shares of POLY handed a price return of approximately 47%, up by around 41% on a year-to-date basis. However, post gold rally halted in September 2019; POLY stock has also delivered a muted return as 3-months return remained flat and plummeted more than 5% in a month ago period.
At the time of writing (as on November 29, before the market close at 02:47 PM GMT), shares of POLY declined 8.0 points or 0.64% to GBX 1,152.5.
Fresnillo PLC (LON: FRES)
London Stock Exchange-traded Fresnillo Plc is the UK's second-largest precious metal and mining company by market capitalisation. The outstanding market capitalisation of the group stood at £4.2bn, which ranks it among the large-cap companies listed and traded on the London Stock Exchange. The company has six operating mines.
In the third quarter of FY19 (Q3FY19), group's gold production declined more than 5% to 209,752/oz, and on a 9M basis, gold production slumped 7.0% to 642,169/oz against the comparing period of the previous financial year.
However, despite a surge in gold prices over the past couple of months, due to lower gold production, its shares seem to have not participated in recent share price rally, which was supported by gold price surge. Shares of FRES tumbled more than 24% on a YoY basis, 33.4% on a YTD basis, approximately 18% in the past three months, down by 16% in the past one-months and traded around 8% lower in the past five trading sessions.
While writing (as on November 29, 2019, after the market close), shares of FRES surged approximately 1.8 points or 0.31% to GBX 572.8.
Centamin PLC (LON: CEY)
Jersey-headquartered Centamin PLC is the third-largest precious metal and mining company listed on the London Stock Exchange in terms of market capitalisation. The outstanding market capitalisation of the group stood at £1.3bn, which ranks it among the mid-cap stocks listed on the London bourse. Also, the group is a constituent company of the FTSE 250 index.
In the third quarter of the FY19, its gold production slumped by 17% to 98,045/oz against 117,720/oz recorded in the year-over period and plunged by 17% on a QoQ basis. Gold sold during the quarter under consideration was 2% higher against the year-ago period to 108,826/oz; however, gold sold during the Q3FY19 slumped by 3% against the preceding quarter.
Shares of CEY delivered a return of 13.06% on a YoY basis and up by 4% on a YTD basis, however, on account of lower gold production in the Q3FY19, its shares tanked more than 25% in the past three months.
At the time of writing (as on November 29, 2019, before the market close at 02:50 PM GMT), shares of CEY traded 2.65 points or 2.34% lower at GBX 110.30. In the year-over period, its shares have registered a 52w high of GBX 154.75 and a 52w low of GBX 79.14, respectively. At the current trading level, its shares are trading 26.6% off those high.
Petropavlovsk Plc (LON: POG)
London Stock Exchange-traded Petropavlovsk Plc is the UK’s 5th largest precious metal and mining company by market-capitalisation with outstanding market-capitalisation of £336.84m, which ranks it among the small-cap company listed and traded on the London bourse. The group operates a gold mine in Russia.
In the third quarter of FY19, the group’s total gold sales surged by 53% to 126.4/Koz against 82.8/Koz sold in the corresponding period of the previous financial year.
Shares of POG delivered a massive return of 80% on a YoY basis, around 67% on a YTD basis, surged approximately 8.45% in the past one-month and handed 4.6% in the past five trading sessions, respectively.
At the time of writing (as on November 29, 2019, before the market close at 02:55 PM GMT), shares of POG traded 1.31% higher at GBX 10.66. In the year-over period, its shares have registered a 52w high of GBX 10.82 and a 52w low of GBX 5.71, respectively.
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