Gold is often seen as an inflation hedge and a safe-haven investment. At the moment, with interest rates near zero, many investors have understandably turned to gold. As such, the price currently stands near its all-time high, and Citigroup analysts reckon there’s a 30% chance of it rising above the $2,000 mark in the next five months. This bodes well for both of these gold stocks.
An unprofitable but high-potential gold stock
Investors who bought Greatland Gold (LSE: GGP) shares at the start of year would have seen them rise 681% by now. This is thanks to the rising price of gold and positive developments surrounding the company.
One of the positive developments is the current Haveiron project in Western Australia. Extensive drilling has unearthed a new zone of high-grade mineralisation, and this project offers significant potential for the gold stock. With around £6m in cash, and no debt, the company is also in a strong position to conduct these operations for the next 12 months.
But do note that the current share price is based on speculation, because Greatland Gold is yet to make a profit. This means there is always the possibility of it running out of cash before it can start producing profits. Many early-stage gold miners suffer this fate. CEO Gervaise Robert Heddle also recently sold 2.5m shares at 12p each. With the current share price at 14p, this may indicate that the Greatland Gold share price is now too high. As a result, investors may want to wait for either a dip in the share price or signs of the company becoming profitable.
A well-established gold miner
Founded in 1970, Centamin (LSE: CEY) is a well-known gold stock. It’s currently priced at just under 200p, levels not reached since 2010. But with the company in a healthy situation, and with the price of gold still rising, many believe that there is still significant potential upside to the stock.
The first thing to mention is that, unlike Greatland Gold, Centamin is profitable. Earnings per share are £0.08 and its price-to-earnings ratio is around 25. While this is not cheap, gold production and gold sales have increased by double-digits from last year. This means that the forward price-to-earnings ratio will be significantly lower.
The gold stock also fields a very strong dividend, yielding around 5%. With earnings projected to increase this year, the dividend looks very safe. This is especially useful in this time of mass dividend cuts. The miner is also in fine health. With no debt, and cash of nearly $300m, I can certainly see the company thriving over the next few years…as long as the price of gold remains high.
As a result, I’d feel more comfortable buying Centamin stock due to its well-established position. While Greatland Gold has significant potential, the share price is based too much on speculation, and this renders the stock too much of a risk for me!
Stuart Blair 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.