My top stock for the month of August was Hochschild Mining (LSE: HOC). I have been high on equities linked to the yellow metal since the beginning of the year, but halfway through the summer, trends started to look especially bullish for gold. The spot price managed to rise above $1,550 over the past week before retreating on August 26.
Late last month I suggested that investors should avoid alternative ‘havens’ like Bitcoin. Cryptocurrencies looked strong coming into the summer, but digital currencies have buckled under the threat of regulations. These assets have failed to generate the kind of momentum that investors should be looking for as a hedge in a shaky market.
Gold, on the other hand, has proven to be one of the better holds so far this year and miners have benefited. Hochschild Mining stock has climbed 17.5% year-on-year as of morning trading on August 27 and the share price increase kicked into high gear this summer, even though it was derailed by less-than-stellar first-half earnings for 2019 on August 14.
The spot price of silver failed to generate significant momentum in the first half of 2019, but the summer has been a different story. Silver prices have climbed above the $17 mark to levels not seen since early 2018. If silver can step out of gold’s shadow in late 2019 and 2020, Hochschild will be in a fantastic position to benefit.
As mentioned, Hochschild released its H1 2019 results on August 14. Its post-exceptional profit before tax declined from the prior year due to slumping silver prices. Fortunately, those prices have enjoyed impressive momentum into late August and this should reflect in its earnings in Q3.
Hochschild boasts a high P/E of 92, but remember this is based on earnings, while silver and especially gold prices were much lower. The uptick in spot prices will translate to improved earnings for Hochschild and other miners in the coming quarters. Producers are still playing catch-up after several years of low prices which have pulled down profits. Gold and silver are both trading at multi-year highs and the broader economic environment is providing a fantastic tailwind. I think Hochschild will continue to be a high performer on the back of this trend.
Bullish signs for the rest of 2019
Two major factors are driving the flight to safe havens right now, the fears of a global economic slowdown and Brexit. Those two are intimately connected, as some analysts fear a no-deal Brexit could be the catalyst that will plunge the global economy into a full-blown recession. Investors should not resign themselves to this gloomy outlook, but holding gold and silver miners as a hedge in your portfolio is a wide decision, I feel.
Hochschild’s silver output stands out as a positive, as there is some risk of gold’s momentum topping out in the near term. I’m bullish on gold and silver miners like Hochschild as geopolitical tensions and economic risks show no sign of letting up.
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Ambrose 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.