A guide for investment in gold stocks as their prices tumble

  • November 29, 2020 02:46 AM GMT
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1378 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

A guide for investment in gold stocks as their prices tumble

Summary

  • The price of physical gold has plummeted over the past four months. It fell from £1,559.52 for one ounce on August 7 to £1,338.10 per ounce on November 27
  • This is despite the ongoing lockdown, which should have triggered a spike in the prices
  • While many large-sized gold companies witnessed a fall, few smaller ones have been performing well at the London Stock Exchange

Stocks of gold producers are keenly observed during the times of a stock market turmoil. Their investors obviously gain as the gold prices strengthen. The current disruption due to the pandemic saw these prices move up and down over the past eight months, but it has largely gone up. The physical gold price started rising exponentially in the first few weeks after the first lockdown. It reached a peak in August, after it has been gradually declining.  

 

Gold as an investable asset class

Gold has always been seen as an alternative investable class for investors. It is a preferred risk hedging instrument and finds a place in portfolios of large institutional and informed individual investors. Many investors typically prefer to park their money in gold when stock markets go down and then again take out the money off gold and invest in stock markets.

The demand for gold has risen exponentially during the pandemic. Investors managing the heightened volatility in equity and oil markets have found a sign of relief in the yellow metal to park their wealth, avoiding value erosion. Gold prices reached this year’s low of £1,210.54 per ounce on 16 March. It rose over the next five months to reach a high of £1,574.37 per ounce on 7 August before falling back again to £1,338.10 per ounce on November 27 

The price drop

Many of the large-sized gold stocks listed at the LSE registered a fall in their prices in the last 15 days on the back of a fall in the gold prices. The fall was magnified by the fact that many investors took to their stock positions just before the second lockdown got imposed, beginning November 2.  However, contrary to expectations, the prices of physical gold did not move upwards over the next fortnight, which has triggered the current prices correction of gold stocks.

The phenomenon, however, was not seen in smaller gold stocks in a similar magnitude as they were performing relatively better. So, while more correction can be expected in the stock prices of larger companies in near future, small gold companies can be a better alternative for investment.

Let’s take a look at 5 small gold mining companies listed on the London Stock Exchange which have been performing well over the past one month despite the fall in the gold prices.

1. Shanta Gold Ltd – (LON: SHG)

(Source- Refinitiv, Thomson Reuters)  

The shares of Shanta Gold Ltd (LON: SHG) have been trading at GBX 13.50 per share on 28 November, losing 1.82 per cent over the previous day’s close.

 

2. Cora Gold Ltd – (LON: CORA)

(Source- Refinitiv, Thomson Reuters)  

The shares of Cora Gold Ltd (LON: CORA) were trading at GBX 7.12 per share on 28 November, losing 5 per cent over the previous day’s close.

 

 

3. Serabi Gold plc – (LON: SRB)

(Source- Refinitiv, Thomson Reuters)  

The shares of Serabi Gold plc (LON: SRB) were seen trading at GBX 80.00 per share on 28 November, losing 1.23 per cent over the previous day’s close.

 

4. SolGold plc – (LON: SOLG)

(Source- Refinitiv, Thomson Reuters)  

The shares of SolGold plc (LON: SOLG) were trading at GBX 35.90 per share on 28 November, losing 1.24 per cent over the previous day’s close.

 

5. Chaarat Gold Holdings Ltd – (LON: CGH)

(Source- Refinitiv, Thomson Reuters)  

 

The shares of Chaarat Gold Holdings Ltd (LON: CGH) were trading at GBX 26.60 per share on 28 November, gaining 4.11 per cent over the previous day’s close.

 

Impact of a vaccine

The arrival of the prospective Covid-19 vaccine could have a softening effect on the prices of gold next year. As a result, the stock prices of gold producing companies could remain subdued in this period. The prices might begin to rise again from 2022 when things start to normalize at the economic front.  

 

 


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