The last 24 hours have taught us that having exposure to precious metals is a good idea. Whether that be by buying the physical metal itself, a metal-backed financial instrument (like an ETF), or shares in a gold, silver or platinum group metal producer itself.
I prefer the latter idea personally. Owning mining stocks often allows investors to receive dividends on top of riding any upswing in the commodity price.
Take Hochschild Mining (LSE: HOC) for example. This Mexico-focused gold and silver producer has swung 6% higher in Tuesday trading on strong safe-haven buying of precious metals. Investors here can also enjoy a handy 1.8% dividend yield for 2020 too. It might not be the biggest, but compare this with the sub-1.4% interest rates that even the best-paying instant access Cash ISA pays out.
Gold gallops again
As I say, movements in the gold and silver price serve as a valuable lesson to us all. Market tensions can flare in a heartbeat, and having exposure to shiny metals can allow you to make profits in such times.
Gold, for instance, has been rangebound around $1,575 per ounce in recent weeks but just sprang back above $1,600 and within a whisker of fresh seven-year highs. Fresh concerns over the economic impact of the coronavirus outbreak globally has caused flight-to-safety demand for the yellow metal to boom again.
Industrial and investment metal silver tracked gold higher and swept back above $18 per ounce for the first time in several weeks.
A sudden uplift in coronavirus-related fears might have pushed the more valuable metals higher more recently. But a mix of other geopolitical and macroeconomic issues, whether it be US-Chinese trade wars, military tension in the Middle East, Brexit, possible recession in the eurozone, and central bank rate cutting,§ have kept prices well supported in recent times. And a sudden flare-up in any of these issues could suddenly send gold and silver hurtling skywards again.
It’s a keeper
Buying Hochschild shares could be a particularly good idea to ride such eventualities. Fresh trading numbers released today show exactly why.
The FTSE 250 miner beat analyst predictions with a doubling in annual pre-tax profits (after exceptionals) in 2019. These came in at $76.8m. Escalating silver values and reduced costs helped drive the top and bottom lines, though better-than-expected production also helped results. Production of gold and silver came in at 477,400 and 38.7m equivalent ounces respectively, beating predictions of 457,000 gold equivalent ounces and 37m silver equivalent ounces by some margin.
Annual output is expected to tick lower in 2020 and costs predicted to creep up, says Hochschild. But the sunny outlook for precious metals means another year of strong earnings growth is expected by City analysts. A 33% profits jump is anticipated.
And this makes the digger a top value pick too. The business deals on a sub-1 price-to-earnings growth (PEG) ratio of 0.5 right now. I’d happily buy it today and hold for protection in uncertain times right up until I retire.
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.