The big investment story of recent days has been the rocketing gold price. The precious metal just soared to record highs close to $2,000 per ounce and dragged the share prices of gold-producing UK shares with it.
It seems gold has plenty more scope to surge in the weeks, months, and possibly even years ahead. With this in mind, I reckon buying UK shares that provide exposure to the yellow metal is an excellent idea in August.
Bullion’s bounce in 2020 has been chiefly down to Covid-19 and concerns over the pandemic’s macroeconomic consequences. Frantic central bank money-pumping and fresh concerns over US and Chinese trade relations have helped self-haven interest too.
What’s commanded less attention is the role that the sinking US dollar has played in driving prices of greenback-denominated commodities to the stars. A falling buck makes it cheaper to buy the likes of gold.
The dire dollar
However, concerns over the value of the US dollar are gaining traction as we move into August. It’s why the US dollar index — an instrument which measures the value of the dollar against a basket of other currencies — has just slipped to two-year lows.
There’s a growing school of experts who reckon the descent is here to stay too. Take those over at Goldman Sachs, for example. They said this week that “real concerns around the longevity of the US dollar as a reserve currency have started to emerge.”
This is because of rising inflation due to ultra-loose Federal Reserve monetary policy, rising Covid-19 infection rates, intense political and social uncertainty, and record levels of government debt.
But Goldman Sachs went one step further. With the US dollar tipped to remain under pressure, it believes that bullion prices could charge to $2,300 per ounce within the next 12 months.
Gold surge boosts UK shares
So it seems buying into gold-producing UK shares remains an excellent idea right now. Buying gold stocks is a better idea than buying the physical metal itself, or buying a metal-backed financial instrument like an exchange-traded fund. Doing this allows investors to track movements in the gold price while receiving dividends.
And boy, there are some brilliant dividend payers to be found among such UK shares. Centamin and Highland Gold Mining offer the largest yields from gold stocks. These sit at 4.6% and 4.5% respectively. Meanwhile, Polymetal International of the FTSE 100 offers a meaty 4.3% yield for 2020 too.
Polymetal’s generated some of the best returns on the FTSE 100, thanks to the booming gold price. Someone who’d invested in this gold stock two years ago would have enjoyed a mighty total shareholder return (that’s taking into account share price rises and dividends) of 215%.
It’s this sort of performance that can help UK shares buyers make a million or more. And I’m backing gold shares like this to keep delivering exceptional shareholder profits in the years to come.
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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.