Greatland Gold (LSE: GGP) is an exploration and production company seeking precious and base metals. The GGP share price has enjoyed a spectacular price rally in recent weeks, with a 326% increase year-to-date.
When I wrote about Greatland Gold back in September, it had a market capitalisation of £65m. Today that stands over £300m! It offers no dividend, and its future success is very speculative. This makes it a risky buy for any investor. Mining is a notoriously volatile investment and not for the faint of heart. As GGP is purely an explorer and doesn’t actually produce or sell gold to date, this makes it even more of a gamble.
The company has been listed on the AIM marketplace since 2006. Along with gold, it also explores for nickel, and cobalt deposits in Western Australia and Tasmania.
Should I invest in gold?
The price of gold has risen 20% year-to-date. Economic anxiety is running deep and financial systems are exceedingly fragile. This is boosting the price of gold to be the safe-haven asset to own.
When the stock market crashed in March, the gold price also fell. This surprised many investors who would have expected it to rally in response. However, many of those investors that buy gold will also be invested in equities, and it’s possible that they were selling their gold to meet the margin demands on their falling shares. Investing in gold isn’t a bad idea to diversify a portfolio and hedge against traumatic periods. Just keep in mind it comes with its fair share of price fluctuations and risk too.
Is the GGP share price a better buy than other gold stocks?
Other gold mining stocks contrast in both cost and risk, but they’re all equally exposed to volatility. The Trans-Siberian Gold share price is down 35% since its September high, but it’s up 95% from its March market crash low.
Gold miner Centamin has gained 77% since its March low and Highland Gold Mining has risen 65%.
In a healthy economy, gold prices are low, but we are far from being in a healthy economy. As it stands, the market for gold looks set to continue to profit from a depressed economy. Massive state handouts and economic stimulus are creating an unexpected set of circumstances to analyse and deal with.
The fallout from the pandemic is yet to be quantified. In parallel to this, the price of oil is making waves. Oil has traditionally been correlated with the price of gold. When one goes up, the other goes down. Oil is experiencing intense volatility. If the oil price suddenly rallies, then the price of gold could contract. However, even if the oil price stabilises, I do not expect it to return to previous highs.
Rumours of GGP being a possible takeover target have been rife in recent weeks after Greatland’s Havieron gold/copper project in Western Australia drew “spectacular drill results“. I still think it’s too risky a share for beginners to stock market investing, but if you’re a seasoned investor, I think the GGP share price is worth watching.
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Kirsteen 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.