An overview of Gold Assets

An overview of Gold Assets

Gold, which has been one of the most important investment options since the beginning of the civilisation has become one of the most prolific assets in the last two decades, given the consistent growth in its price and the safety net that it provides. Gold as an asset plays an extremely important role in both an individual’s portfolio, as well as when it is held by the Central Banks of various countries. Gold acts as a portfolio diversifier that can be used to mitigate risk and it can outperform currencies in terms of long-term returns. This can be proven by looking at the graph below which shows the growth in the price of Gold over the last 10 years.

(Source: Thomson Reuters)

In terms of latest trends of demand of different types of gold products in the third quarter of 2019, it was noticed that there was a major surge in the demand of Exchange Traded Funds inflow, which counterbalanced the weakness of gold demand in other areas, and the overall growth was at 3 per cent during the quarter. It was also reported that the Central banks’ demand stood healthy during the period, but it was no match to the record levels set in Q3 2018. Jewellery demand was low because of the high prices of gold, which also led to the reduction in demand for Bars and coins during Q3 2019. In terms of the supply of the precious metal, there was a growth of 4 per cent during the period, primarily driven by increased recycling of the product.

Let us have a brief look at some of the biggest gold stocks on the London Stock Exchange:

Fresnillo Plc

Fresnillo Plc (LON: FRES) is a Mexican mining company that is in the business of extraction and mining of non-ferrous minerals, especially gold. The company also engages in the business of development of the by-products of gold and selling the said products across the world. The company operates through seven operating mines in Mexico.

FRES Share Price Performance

As on 6th January 2020, at 09:10 A.M GMT, by the time of writing, Fresnillo Plc’s share price was reported to have been trading at GBX 665.24 per share on the London Stock Exchange, an increase in the value of 0.64 per cent or GBX 4.24 per share, in comparison to the previous day’s closing price, which was reported at GBX 661.00 per share. The company’s market capitalisation was reported at GBP 4.870 billion with regards to the current stock price.

The beta of the stock of the company has been reported to be at a value of 1.06; it signifies that the movement in the price of the stock of Fresnillo Plc, is more volatile, as opposed to the movement of the comparative benchmark index in the previous one year.

Polymetal International Plc

Polymetal International Plc (LON: POLY) is a Cyprus based Gold and Silver mining company that operates through its assets in Russia and is the 2nd largest gold production company in the country. The company has a list of high-quality asset portfolio with 9 producing gold and silver mines, with 1562 Koz Gold production at the end of 2018.

POLY Share Price Performance

As on 6th January 2020, at 09:20 A.M GMT, by the time of writing, Polymetal International Plc’s share price was reported to have been trading at GBX 1226.50 per share on the London Stock Exchange, an increase in the value of 1.36 per cent or GBX 16.50 per share, in comparison to the previous day’s closing price, which was reported at GBX 1210.00 per share. The company’s market capitalisation was reported at GBP 5.689 billion with regards to the current stock price.

The beta of the stock of the company has been reported to be at a value of -0.05; it signifies that the movement in the price of the stock of Polymetal International Plc, is inversely correlated to the movement of the comparative benchmark index in the previous one year.

Gold at the Bank of England

The Bank of England provides custody for all the United Kingdom’s gold reserves as well as for some of the other Central Banks. This has greater significance because London is the global centre for the trading of Gold. The Bank of England holds the UK’s gold reserves for Her Majesty’s Treasury or popularly known as HM Treasury.

An overview of Oil Assets

Oil is the world’s most actively traded commodity, primarily because it is one of the most important yet scarce resource available affecting our day to day lives. Extraction, shipping as well as the refinement of oil is an extremely long process and the framework to support the procedure is very capital intensive. This includes a huge number of miles of oil pipelines across nations, storage in significant oil trading centres, as well as a wide number of refineries. In total, the worldwide oil industry is a multi-trillion-dollar industry. Oil is particularly imperative to organisations that vigorously depend on fuel, for example, aircraft, plastic makers, and farming organisations. Being such a significant source of energy, oil makes up for a significant import and export for various nations. The significance of this asset makes a tremendous financial trading market.

(Source: Thomson Reuters)

Oil prices were up by a little more than 2 per cent today, post the previous trading day’s massive 3 per cent surge in the middle of escalating geopolitical tensions in the Middle East.

Let us have a brief look at some of the biggest oil and gas stocks on the London Stock Exchange:

John Wood Group Plc

John Wood Group Plc (LON: WG.) is an Aberdeen, United Kingdom based Oil equipment company that provides engineering as well as other support services to the oil and gas sector.

Share Price Performance

As on 6th January 2020, at 09:30 A.M GMT, by the time of writing, John Wood Group Plc’s share price was reported to have been trading at GBX 412.20 per share on the London Stock Exchange, an increase in the value of 4.86 per cent or GBX 19.10 per share, in comparison to the previous day’s closing price, which was reported at GBX 393.10 per share. The company’s market capitalisation was reported at GBP 2.692 billion with regards to the current stock price.

The beta of the stock of the company has been reported to be at a value of 1.38; it signifies that the movement in the price of the stock of John Wood Group Plc, is more volatile, as opposed to the movement of the comparative benchmark index in the previous one year.

BP Plc

BP Plc (LON: BP.) is London, United Kingdom based company that is one of the world’s biggest oil and gas producer and distributor. The company operates in both upstream and downstream, as well as services space within the Oil and Gas Industry through its subsidiaries.

Share Price Performance

As on 6th January 2020, at 09:40 A.M GMT, by the time of writing, BP Plc’s share price was reported to have been trading at GBX 503.80 per share on the London Stock Exchange, an increase in the value of 1.97 per cent or GBX 9.75 per share, in comparison to the previous day’s closing price, which was reported at GBX 494.05 per share. The company’s market capitalisation was reported at GBP 100.673 billion with regards to the current stock price.

The beta of the stock of the company has been reported to be at a value of 1.43; it signifies that the movement in the price of the stock of BP Plc, is more volatile, as opposed to the movement of the comparative benchmark index in the previous one year.

Price Relationship between Oil and Gold

Oil and gold prices have a significant relationship as the price of oil, has an important role to play in the price of gold. Since both the prices of Crude Oil and Gold are determined in US Dollars, there is a significant link between the price of oil and gold, When the US dollar rises, dollar-denominated assets usually drop in price. Another reason is the link between the mining industry and their requirement of energy and oil, which leads to a surge in price for both the assets together. Hence, when the price of oil rises, generally that is followed by a surge in gold prices as well, which can be ascertained from the chart of prices of both the commodities below:

The impact of the Latest US-Iran conflict on prices of Gold and Oil

On 4th January 2020 US Drone Airstrike on Baghdad, the Capital of Iraq were reported, killing Major General Qassem Soleimani, chief of the elite Quds Force who was also one of Iran’s most influential figures. This straightaway led to tensions between two countries as Iran vowed to take revenge for the operation in a time and place of their choice and US President responding to this statement by making threats of his own. These tensions affected oil prices significantly as Iran is one of the major oil-producing country. Oil prices were reported to be trading at US $3 per barrel while gold prices leapt too, as spot gold prices hit a high of US $1,553.20 per ounce. Amidst fears of major escalation and a situation of war is being anticipated, oil prices and gold prices are expected to rise further, which would be a major hindrance to the global economic environment, which was all set to see some improvement in the year 2020.

 

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