The price of gold is soaring! Would I buy these gold stocks?

The price of gold has soared over the last few months. With many believing the price can continue to rise, should investors dive in?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Gold is often seen as an inflation hedge and a safe-haven investment. At the moment, with interest rates near zero, many investors have understandably turned to gold. As such, the price currently stands near its all-time high, and Citigroup analysts reckon there’s a 30% chance of it rising above the $2,000 mark in the next five months. This bodes well for both of these gold stocks.

An unprofitable but high-potential gold stock

Investors who bought Greatland Gold (LSE: GGP) shares at the start of year would have seen them rise 681% by now. This is thanks to the rising price of gold and positive developments surrounding the company.

One of the positive developments is the current Haveiron project in Western Australia. Extensive drilling has unearthed a new zone of high-grade mineralisation, and this project offers significant potential for the gold stock. With around £6m in cash, and no debt, the company is also in a strong position to conduct these operations for the next 12 months.

But do note that the current share price is based on speculation, because Greatland Gold is yet to make a profit. This means there is always the possibility of it running out of cash before it can start producing profits. Many early-stage gold miners suffer this fate. CEO Gervaise Robert Heddle also recently sold 2.5m shares at 12p each. With the current share price at 14p, this may indicate that the Greatland Gold share price is now too high. As a result, investors may want to wait for either a dip in the share price or signs of the company becoming profitable.

A well-established gold miner

Founded in 1970, Centamin (LSE: CEY) is a well-known gold stock. It’s currently priced at just under 200p, levels not reached since 2010. But with the company in a healthy situation, and with the price of gold still rising, many believe that there is still significant potential upside to the stock.

The first thing to mention is that, unlike Greatland Gold, Centamin is profitable. Earnings per share are £0.08 and its price-to-earnings ratio is around 25. While this is not cheap, gold production and gold sales have increased by double-digits from last year. This means that the forward price-to-earnings ratio will be significantly lower.

The gold stock also fields a very strong dividend, yielding around 5%. With earnings projected to increase this year, the dividend looks very safe. This is especially useful in this time of mass dividend cuts. The miner is also in fine health. With no debt, and cash of nearly $300m, I can certainly see the company thriving over the next few years…as long as the price of gold remains high.

As a result, I’d feel more comfortable buying Centamin stock due to its well-established position. While Greatland Gold has significant potential, the share price is based too much on speculation, and this renders the stock too much of a risk for me!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »