Precious metal prices could be on the cusp of another bull run. So I’m considering opening a position in FTSE 250 share and gold miner Centamin (LSE:CEY).
I can choose to buy physical gold like bars or coins. I also have the option of investing in an exchange-traded fund (ETF) that tracks movements in bullion values. But I’d rather buy shares in this Africa-focused miner instead.
This is because Centamin offers a juicy 3.5% dividend yield today. Actual gold, or a financial instrument like that ETF by comparison, doesn’t provide me with an income.
What’s more, Centamin’s dividend yield marches to an even better 4.1% for 2024 (though future yields can’t be guaranteed).
A new gold rush?
Buying commodity stocks like this can be risky for investors. Profits are closely tied to the value of the raw materials they produce. And prices can suddenly tank for a variety of reasons.
Yet right now gold values look to be set for sustained strength, though past performance is not an indicator of future results. The precious metal has surged to one-year highs close to $2,000 an ounce due to worries over the global banking system. The rapidly evolving financial sector crisis could send it even further northwards too.
I also believe gold prices could keep chugging higher as inflationary pressures persist. In this environment, hard currencies like the yellow metal remain in high demand as the value of paper currencies come under scrutiny.
Last week, the Organisation for Economic Co-operation and Development (or OECD) confirmed that headline inflation continues to fall. But it added that “core inflation remains elevated, held up by strong service price increases, higher margins in some sectors and cost pressures from tight labour markets”.
These factors look set to persist for some time too. With geopolitical tension also rising and the economic recovery looking fragile, I think gold prices could soon burst to new record highs. The metal’s current peak struck in 2020 sits just shy of $2,070 per ounce.
A long-term investment
But don’t think Centamin is just a decent stock to buy for today. Investing in gold-related assets can be a good idea at any point of the economic cycle.
As last week showed, economic, political, and/or social crises can emerge any time to drive demand for safe-haven assets. The same thing happened when gold sprung to its current record highs when the Covid-19 crisis broke out.
Exposure to gold can protect an investor’s wealth at such times by offsetting falls in the value of a person’s other assets. Thus it can have a significant impact on an investor’s long-term returns.
This isn’t the only reason I think Centamin’s a great stock to buy and hold onto however. I like the steps the miner is taking to supercharge production at its flagship Sukari asset in Egypt.
The business plans to consistently produce 500,000 ounces of the yellow commodity each year. This could give profits an extra kick and boost shareholder returns still further.
I don’t have unlimited funds available to buy UK shares. But Centamin’s a share I’ll be looking to acquire if I have spare cash to invest.
