Investors looking to dig some profits out of gold should steer away from buying the precious metal and buy shares in gold mining companies instead, argues a leading analyst.
Even with market experts predicting gold prices may hit as high as $3,600 an ounce next year, the commodity is stable but still priced at 30% below last year’s peak.
If prices rise, equity stakes in gold mining companies are likely to improve alongside the increase.
If the price of gold loses its shine, gold miners should still prosper as confidence in the sector is still riding high with investors.
So, either way, Simona Gambarini, a research analyst at ETF Securities, predicts taking an equity stake should pay.
She explained that the ‘fundamentals’ underpinning investing with gold miners are particularly attractive.
Not only did many mining companies shaved their costs by 15% towards the close of 2013, but shares in the sector are trading at a 4% discount against net asset values – the lowest valuation ever in the market.
“These are bargain valuations and are not sustainable forever,” said Gambrini. “Sooner or later gold mining shares will start to outperform other equities as stock markets continue to rise and investors look to switch to riskier assets for better returns.”
To support her views, Gambrini notes that funds investing in gold mining companies were among the top performers in January 2014.
The biggest monthly gains were posted by Junior Gold (21.88%), WAY Charteris Gold Portfolio (15.11%) and BlackRock Gold & General (10.04%).
Precious little confidence
Meanwhile, a panel of leading gold experts meeting at the inaugural Global Commodity Outlook Conference hinted that gold prices will hover around the current level of $1,290 an ounce for the rest of the year – and then rocket up to $3,600 an ounce next year.
Their predictions are based on the US Federal Reserve taper moving investors away from the US dollar to the precious metal for higher profits as the taper inflicts damage on the American economy.
Their enthusiasm for gold has not rubbed off on leading banks – with several showing little confidence in a recovery for the precious metal.
Deutsche Bank has the most confidence in gold prices, forecasting an average price of $1,141 an ounce this year, while HSBC struggles to see $1,292. Barclays favours an average price this year of $1,205 an ounce.