Gold prices are all over the place right now. Having fallen through the critical technical level of $1,500 per ounce this week many are speculating that further heavy falls could be set for the coming sessions. Unsurprisingly this is having a devastating impact on the share prices of London’s major metal producers too.
Take Centamin (LSE: CEY), for example. This particular gold producer has shed almost a fifth of its value since the start of September thanks to those turbulent metal prices. Such a heavy decline now leaves it sporting a rock-bottom forward PEG (price-to-earnings growth) ratio of 1.1 times and inflation-mashing dividend yields of 5% and 6.1% for 2019 and 2020 respectively.
China breakthrough? Fat chance!
My advice to investors right now? Fill your boots with Centamin and some of those other slumping stocks.
Besides the fact that having gold in your shares portfolio is a good hedge to have in tough economic and political times, this recent sell-off clearly provides share pickers with some exceptional value for money. And in all likelihood, this recent gold price reversal will prove but a blip in the metal’s long-term investment story.
Bullion prices have dropped this week on speculation that US and Chinese lawmakers are edging closer to a trade deal, giving market risk appetite a shot in the arm and leading to speculation that the biggest cloud for the global economy in 2020 is about to be zapped. Indeed, US President Trump suggested that he’d accept an interim deal to break the deadlock and ease the strain that tariffs are causing to the world’s top two economies.
Call me a party pooper but haven’t we been here before? Claim and counter-claim have been a hallmark of the saga since it kicked off in spring 2018 and things haven’t changed one jot, one anonymous White House official telling Bloomberg that Trump was “absolutely not” considering an interim deal.
Interest rates still dropping
The picture remains clear as mud, a situation that suggests gold prices have the scope to bounce back in the days and weeks ahead. However, there’s been fresh news this week in terms of global interest rates that should help boost gold demand as a hedge against rising inflation.
The European Central Bank grabbed most of the headlines this week when it slashed its benchmark rate to a fresh low of -0.5% and declared a new programme of bond buying to prop up the ailing eurozone economy. But there was notable action elsewhere too, with Turkey slashing its own deposit rate by an eye-popping 3.25% to 19.75% and Denmark axing its own rate to a new all-time low of -0.75%. Central banks remain locked in a race to the bottom and this looks set to keep running for a long time to come.
As a result, the broader broker community expects gold prices to keep sailing north at least through to the early 2020s and this, allied with Centamin’s efforts to turbocharge metal production, means that City analysts predict annual earnings growth of nearly 20% for this year and next. There’s clearly a lot of reason to be optimistic about the share right now and I consider it to be a top share to buy today and hold for many years to come.
