Yes, gold prices will shine again. The best UK mining shares I’d buy now

The gold prices plunged yesterday. But this correction won’t last for a long time, I think. Here’re the best UK mining shares I’d buy now.

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Gold prices plunged yesterday. But I think this correction won’t last for long. Here are the best UK mining shares I’d buy now.

Yesterday was a classical risk-on session. Shares of car makers, banks and oil companies surged substantially. But the shiny yellow metal dropped below $2,000 per ounce. The question is whether this situation will last for a long time.

Gold prices will rise, I think

I don’t think investors will have a risk-on mood forever. First, the Covid-19 crisis isn’t over. The first vaccine was registered yesterday, but that doesn’t mean it is effective. What’s more, it doesn’t mean it will be immediately available to everyone. 

We also shouldn’t forget that it will probably take the global economy ages to recover from the consequences of the coronavirus lockdown. Think of high unemployment and rising corporate bankruptcies. 

I totally agree with my colleague Paul Summers, that the Fed and other central banks will have to pump plenty of liquidity in the financial system. This is an extremely bullish factor for gold prices. 

Finally, don’t forget the geopolitical uncertainty. The risks of a ‘no-deal’ Brexit are still here. The US elections and US-China tensions might also lead to stock market volatility. So, investors will most probably rush to buy safe havens. As we all understand, this will push gold prices higher. 

Best UK mining shares

Perfect. You might be wondering how to play this potential gold rush. The safest way, it seems, is buying physical gold. It is normally available as gold bars and coins. But physical gold has two serious drawbacks. First, the storage costs are normally high. Secondly, gold won’t pay you any dividends or interest.

I think buying UK mining shares is the most profitable way of playing surging gold prices. The mining companies’ shares will appreciate together with the shiny metal. What’s more, many companies also pay dividends. Sure, it might seem riskier. At the same time, if you invest in large enough companies with a long operational history, you minimise your risks and maximise your gains.  

So, what are the best UK mining shares for investing in gold?

One of the largest companies specialising in gold is Polymetal International (LSE:POLY). The company has been steadily growing its revenues and profits since 2016. It has also been paying and raising dividends over this time. Compared to many other gold miners, Polymetal is pretty big. Its sales revenue totaled $2.25bn in 2019. But it’s trading at a premium to its peers with a price-to-earnings (P/E) ratio of around 20. 

You could also try to play with smaller-cap stocks but I wouldn’t recommend a novice investor to do so. They tend to be riskier although the profit potential is higher. You might also be wondering if large diversified mining companies are better. Indeed, they tend to have less risk. At the same time, they extract many industrial metals such as copper and iron ore. Think of Rio Tinto and Anglo American. These metals are demanded when the global economy is gowing, which isn’t the case now. Such companies might be good for patient investors. But I’d rather stick to large-cap gold miners.

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.

Anna Sokolidou has no position in any of the shares mentioned in this article. 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.

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