For gold investors, the current environment should make for the perfect storm.
War, global inflation, Covid after-shocks and deteriorating trade relations are the sort of frighteners that would normally provide a push towards the yellow metal, a unique store of value in troubled times.
Yet, after a spike in late February (marking the start of the war in Ukraine), gold’s price has slipped around 9% to trade at just a smidge over US$1,850 an ounce.
In a note, City broker Liberum points out that the Fed is the big depressant; this and the inverse correlation between the price of the gold and real yields.
So, its stance in the medium term is mildly bearish on the price of the precious metal as the American rate-setters, along with central bankers around the world, set about tackling inflation with hikes to the cost of borrowing.
Rather than hold gold itself, Liberum is a proponent of nabbing exposure via the equity market. Specifically, it has ‘buy’ recommendations on two stocks: Centamin PLC (LSE:CEY, TSX:CEE, OTC:CELTF) and Shanta Gold PLC.
On the former, it says shares are below its 98p ‘base case’ valuation (they are 82p each currently). The 112p price target, therefore, offers 37.5% ‘upside’ from current levels.
“Potential share price catalysts in 2022 include studies on underground expansion and production from bonanza structures, and airborne survey results,” Liberum said in its note.
Shanta, meanwhile, offers the “best UK gold exposure” featuring “bullish catalysts” over the next six to 12 months from its three assets, the broker said.
The 32p a share price target suggests the stock could more than triple in value from its current price of 9.6p.