The latter half of 2016 proved successful for many of London’s drillers and diggers, but one commodities sub-segment was left to wallow in their wake — precious metals.
FTSE 100 gold giant Randgold Resources (LSE: RRS) saw its share price losing 24% of its value during July-December, while blue-chip peer Fresnillo (LSE: FRES) suffered a 26% decline.
FTSE 250 producer Centamin (LSE: CEY) was a bright spark in a battered sector however, its stock actually gaining 5% in value.
But I believe the Egypt-based producer’s gain last year could pale in comparison with those in 2017 and reckon — along with its gold-and-silver-digging colleagues — Centamin could explode in the months ahead.
Back in fashion?
Gold prices, and with it the share prices of large and small producers alike, fell from their July highs as investor caution gave way to frenzied buying of so-called risk-on assets. This caused bullion to slip from July’s 28-month highs around $1,370 per ounce and end the year over $200 cheaper.
Meanwhile, dual-metal producer Fresnillo was also whacked by a slide in silver values — the metal shed a fifth of its value in H2.
But precious metals values have spiked again in recent sessions as the so-called Trump Rally — a phenomenon that had powered stocks across both sides of the Atlantic higher — has run out of steam.
Indeed, gold values hit three-month peaks above $1,230 per ounce in start-of-week trade thanks to signs of fresh geopolitical turbulence in Europe.
Muddy waters
Gold values struck last summer’s peaks in the aftermath of Britain’s momentous decision to leave the EU. And this issue looks set to run and run as a variety of political hot potatoes, particularly on the topics of trading tariffs and immigration, dominate how the country’s self-imposed exile plays out in the years to come.
The future of the EU itself as Britain plans to go it alone also went up a notch or several last week after French presidential hopeful and Front National leader Marine Le Pen called for a Frexit referendum that could theoretically see Europe’s third largest economy also withdraw from the bloc.
Furthermore, Le Pen’s threat of pulling France out of NATO has prompted investors to buy back into safe-haven assets like gold, her comments echoing recent swipes at the defence club by President Trump. Clouds over NATO’s fate couldn’t come at a worse time with fears of a Cold War 2.0 versus Russia back on the rise.
And back on the economic front, Le Pen’s determination to pursue an anti-globalisation agenda — again, mirroring the aims of the newly-minted US leader — threatens to rip up the old order and create an age of recalibration and uncertainty.
But trouble in Britain and France aren’t the only cause for worry, the threat of a Greek debt default is once again rearing its head and putting the future of the euro back in the spotlight.
Naturally, a fresh wave of US Federal Reserve hikes in 2017 could put paid to meaty advances in the gold price, developments that would serve to strengthen the US dollar and make commodities of all classes more expensive to buy.
Still, I believe there are a number of political and economic factors that could send cautious investors piling back into the comfort of precious metals as we progress through 2017, propelling the share prices of producers like Randgold, Fresnillo and Centamin sky high.
