With gold prices soaring, is now the time to buy Endeavour Mining shares?

Endeavour Mining shares are on my radar as the West Africa-focused gold producer is riding serious tailwinds. But will the yellow metal keep rallying?

| More on:
A pastel colored growing graph with rising rocket.

Image source: Getty Images

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.

With two awful wars and a possible peak in interest rates in the headlines, I’m wondering if Endeavour Mining (LSE:EDV) shares could be a good buy.

The company is a prominent gold producer with a strong presence in West Africa, operating mines in Côte d’Ivoire, Burkina Faso, and Senegal.

With the yellow metal on a significant upswing prompted in part by rising tensions in the Middle East, Endeavour looks well placed to benefit.

What’s going on with this stock?

Last week, Endeavour bucked the wider trend by jumping 6.3% while the FTSE 100 sank by 2.6%.

Trading at a price of £17.60, it’s still a long way from its 52-week high of £22.42.  

It has a price-to-book (P/B) ratio of 1.53, suggesting to me that it’s fairly valued. At the same time, it doesn’t look overleveraged, with debt standing at a reasonable 27% of equity.

There’s no company-specific news that justifies the price spike from last week. The last major update came in June when Endeavour closed the sale of its 90% interests in its Boungou and Wahgnion non-core mines in Burkina Faso.

It’s clear to me that the recent price action was a reaction to the surge in gold prices.

Freeloading pet rock

Gold prices are back within striking distance of the $2,000 mark, having jumped 8% since Hamas attacked Israel on 7 October. If the tragic events in the Middle East spiral out of control, gold could see a massive upswing due to jittery investors looking for a safe haven.

However, I think it’s more likely gold will settle back down again. From the perspective of global supply chains, this is not another Russia-Ukraine. Israel and Palestine do not export commodities to Western economies on any meaningful scale.

Raised interest rates are also a massive drag on gold prices. That’s because the yellow metal is a non-yielding asset. In other words, it sits in portfolios without ever once paying out a single rent, interest, or dividend payment. When money-market funds are paying close to 5% interest, keeping a freeloading pet rock looks a lot less appealing.

In short, while it has a place in a diversified portfolio, overall I don’t think the wind will continue blowing in gold’s sails. By extension, I reckon Endeavour’s stock price could also take a tumble. 

Why I won’t be buying

If I were bullish on gold, I’d buy shares in a straightforward fund, like Wisdom Tree Physical Gold ETC. Such an investment takes out many of the risks that go hand in hand with owning shares in a mining company.

What kinds of risks come with mining for gold in West Africa? Well, just think about how Niger has been rocked by unrest and coups this year. Now, consider that Endeavour is operating in similarly unpredictable jurisdictions that share a border with that country – like Côte d’Ivoire, Burkina Faso, and Mali.

I’m steering clear of gold, and I’m giving Endeavour stock an even wider berth.

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.

Mark Tovey 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

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

4 penny stocks I’d love to buy for my Xmas stocking!

I'm hoping to buy these top penny stocks when I next have the opportunity. I think they could be some…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Why I believe the lagging FTSE 250 is a rare opportunity to buy cheap shares now

The FTSE 250 is showing some attractive numbers and they suggest some cracking value among businesses listed in the index.

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is this FTSE 250 TV giant one of the best opportunities on the market right now?

A staple name among UK television lovers, this FTSE 250 stock has fallen substantially. Is it time to buy the…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could this 2.5% yielding penny stock soar in 2024 and beyond?

This penny stock has struggled throughout 2023 but could the new year provide it with a much needed positive momentum…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to buy in December [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Close-up of British bank notes
Investing Articles

With £500 I’d start a passive income portfolio with these UK shares

Owning shares in an established business can be a great source of passive income. And Stephen Wright thinks now is…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I’d buy these FTSE 100 and small cap stocks in 2024 to target a second income!

This FTSE share offers a 6% dividend yield and trades on a rock-bottom P/E ratio. Here's why I'll buy it,…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s one excellent FTSE 100 value stock investors should consider buying

Sumayya Mansoor explains why this packaging giant is currently in value stock territory and should be on investors radars.

Read more »