The price of gold has had a great run recently. It’s up 27% in a year. But fund manager Diego Parrilla, of the Spanish Quadriga Asset Managers, believes there’s more upside in store, according to a Bloomberg report. Parilla’s $450m fund, with at least half its investments in gold and other precious metals, has seen a 47% return this year.
Gold price has more upside
Gold is a popular investment in times of economic slowdown. As doomsday thinking takes over and we are unsure of all other investment options, we are likely to buy gold. I don’t think a systemic collapse, which will hold gold in best stead of all assets, is likely. But gold can still be a good hedge during stock market crashes.
Ideally, I think the best time to buy gold is during economic booms, when the performance of other financial instruments takes the shine off the yellow metal. But if Parrilla’s views are to be believed, even right now can be a good time. According to him, the gold price could double in the next three to five years. I think holding a small percentage of your investment portfolio in gold maybe an idea to consider in any case. And if you are risk averse or are convinced of its merit, buying even more maybe a good idea too.
There’s more than one way to buy gold. The most obvious is to hold gold in its physical form as gold bars. Another option is to hold it via one of the multiple exchange-traded funds (ETF) based on gold.
A third way of buying exposure to gold is through FTSE stocks. Consider the FTSE gold miner, Centamin Mining (LSE: CEY), whose recent results are encouraging. Both gold production and gold sales have increased by double digits from last year. After seeing falling revenues in three of the last four years, I think the latest numbers bode well for CEY in 2020. Cyclicality in the gold price and performance can’t be ruled out, of course, since gold demand is expected to rise in recessions. This means that gold demand can remain muted in good years.
We don’t know how long this recession will last, though. If the economy continues to remain weak or even uncertain, gold prices can remain elevated, as Parrilla suggests. The Covid-19 threat hasn’t receded completely either. Geo-political tensions are also underway. If the UK does decide to proceed with the no-deal Brexit, it could result in much uncertainty. The US and China haven’t seen eye-to-eye in a while. And stress between the two may well escalate over time, further impacting economic growth and possibly creating another stock market crash.
As a result, the gold price and the Centamin Mining share price will be impacted. The CEY share price is trading at all-time highs right now. Further, it offers a dividend yield of 5.2%. For those of us who are particularly risk averse, this is a stock to consider. But it’s worth bearing in mind, that with improvement in economic conditions, it can come off fast too.
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Manika Premsingh 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.