I think that having exposure to gold is always a good idea for investors like me. As the Covid-19 crisis showed last year, significant economic, political and social crises can spring up at any time. Owning UK shares that haul the metal out the ground can help limit the impact of soaring risk-aversion on my shares portfolio. Heck, it could even help me make a fortune.
Gold prices rocketed 25% in 2020 as the pandemic hammered the global economy. And this pushed the share prices of London-quoted precious metals diggers to the stars. Take Polymetal International (LSE: POLY) of the FTSE 100, for example. This business — which owns a string of gold and copper mines across Russia and Kazakhstan — rose 41% over the course of the year.
Looking good for gold prices?
The price of bullion has fallen around 200 bucks from the record highs above $2,070 per ounce hit in August. But I don’t think gold’s race is run yet. And neither do City analysts, who also reckon Polymetal’s earnings will rise 21% in 2021 from last year’s levels.
I also think there are still plenty of issues that could cause bullion prices to balloon again. The possibility that new vaccines might not protect against Covid-19 variants is one. Intensifying coronavirus lockdowns across the globe could be another driver of the gold price and the Polymetal share price. Possible fresh rounds of trade wars, particularly between the US and China, is another And more central bank stimulus and interest rate cuts to help the fragile economic recovery could also boost gold values.
That’s not to say that investing in gold shares isn’t without risk, of course. Resurgent appetite for riskier assets like UK shares would weigh heavily on prices of safe-haven assets like gold bullion. And buying miners is always carries an element of operating risk as production problems can be commonplace and costs can unexpectedly soar.
More dollar weakness?
The possibility of a resurgent US dollar also threatens to dampen gold demand. Commodities like precious metals are denominated in the greenback. This makes them less cost effective from an investment perspective.
However, the prospect of a soaring dollar isn’t something I’m too worried about in the short-to-medium term. In fact, I think further dollar weakness can be expected as US President Joe Biden launches trillions of dollars of fresh stimulus. And as I say, central banks like the Federal Reserve are set to keep the money printers switched on too.
A top UK share for value lovers
I’m also encouraged by recent news from Polymetal on the production and exploration front. Third-quarter production rose 7% year-on-year to 477,000 ounces. And in November, the company lifted ore reserve estimates at its world-class Kyzyl asset in Kazakhstan by a whopping 25%.
Today, Polymetal trades on a forward price-to-earnings (P/E) ratio of just 9 times. The FTSE 100 firm carries a 7.7% dividend yield for 2021 too. All things considered, I think this cheap UK share could be a brilliant buy for me right now.
Royston Wild 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.