Gold prices touched new highs last year as pandemic fears drove investors to this safe haven. However, much has changed since. A renewed sense of security has diverted attention and money towards riskier financial assets. As a result, gold prices have fallen more than 11% in the past year.
Centamin share price falls
This is also evident in share prices of precious metals miners like Centamin (LSE: CEY). At this time last year, its share price was at an all-time-high, but it has fallen to less than half those levels ever since.
On the one hand it looks like an opportunity to buy the stock. After all, it has seen a sharp fall, allowing me to buy it at a discount. On the other hand, it may be a sign to stay away from it. If gold keeps losing value, while other assets (like stocks) gain ground, then the Centamin share price could keep falling.
Mixed result for the gold stock
Its latest results are also discouraging. The company’s revenue fell by 18% in the first half of 2021 compared to the same time last year. Its net profit is also down by 20%. These numbers follow a decline in gold production.
However, there are positives to the stock too. Despite its latest production decline, it has maintained its production guidance for the year. Also, its realised price for gold was actually 9% higher than last year, which means that despite the fall in the gold price, it may still have been in a position to make gains. This makes me hopeful for the next half-year as well.
Also, it still has a robust dividend yield of around 5%. In fact, Centamin has paid dividends consistently for a number of years now, which is encouraging at a time when the outlook for gold is weak.
The case for a positive outlook
I also like analysts’ forecasts on the stock. According to Financial Times data, even the most pessimistic analysts on the stock expect its share price to rise from the current levels. And the optimistic among them actually expect the share price to be up by over 70% in the 12 months. Now, analysts’ forecasts are subject to change, but a consensus among all of them that a share price will rise is rare in my experience.
In fact, I think that as long as there are macro risks, there is a case for buying gold and by extension, gold stocks. For instance, inflation is rising, which has an inverse relationship with gold price. The verdict is still out whether inflation is really here to stay or if it is just a matter of time before post-lockdown production catches up with demand.
My assessment
However things finally turn out, the fact remains that the inflation risk exists for now. This makes gold investments desirable to hold at present. In any case, I am of the view that some proportion of my portfolio should be in gold just for safety. And Centamin also earns me a good dividend yield while I hold it. So why not buy it?
