In 2011, the gold price peaked at just over $1,900 (£1,470) a troy ounce. At that time, global economic prospects looked bleak, interest rates were at rock bottom and investors were turning to gold as an insurance policy.
Today, conditions are arguably even shakier than they were then. Fears of recession are growing, fuelled by the spread of coronavirus, continued trade tensions between China and America and persistent low growth in most developed economies.
At the same time, interest rates remain at record lows and many bonds are actually in negative territory, which means, incredibly enough, that investors have to pay interest to own them.
Hot tip: Golden Prospect Precious Metals invests in firms that can pour cash
Against this background, gold has been on a roll in recent months. Last Friday however, as stock markets slumped, even gold sold off, sliding 3 per cent in a single day to $1,586.
Such a reaction is highly unusual because gold is an ideal hedge in difficult times. The price should recover in the coming weeks and there are many ways to access the market as it does.
Investors can purchase gold outright, buy passive funds that invest in physical gold (known as gold-backed ETFs) or pick up individual gold mining stocks. There is another option, too: buying investment trusts that own shares in a range of gold miners.
One of the best of these is Golden Prospect Precious Metals, which invests in small and mid-sized miners. Listed on the Stock Exchange since 2006, the company has a long track record of success and its shares deserve to be considerably higher than their current 28.9p price.
Golden Prospect is run by Keith Watson and Rob Crayfourd, whose combined experience in the market exceeds four decades. Watson trained as a physicist and Crayfourd as a geologist so, not only do they understand how mining stocks work, they also understand the science of mining.
The duo seek out mining firms with strong management, robust balance sheets and good growth prospects. They look around the world and deliberately focus on smaller businesses as these are often undervalued compared to their larger peers.
For many investors, buying shares in junior miners is fraught with danger. Companies promise the world, run into difficulties and often run out of cash. Fortunately, Watson and Crayfourd have developed an approach that largely avoids these accident-prone groups.
They invest in firms that are already in production or close to it, with sufficient cash to start producing without going back to shareholders. They also see hundreds of companies every year, but only a few make the grade and that is after extensive research and meetings with management.
Today, Golden Prospect has some 55 holdings in its portfolio, although investments are concentrated in around 25 names.
Gold has been on a roll in recent months and despite selling off on Friday – sliding 3 per cent in a single day to $1,586 – the price should recover in the coming weeks
West African Resources is the trust’s largest investment – a company that is mining in Burkina Faso but listed in Australia. The group is about to move into production and its share price has more than quadrupled since Watson and Crayfourd invested in it.
Toronto-listed Calibre Mining is a strong performer too, up 80 per cent in the past year, following increased production from its Nicaragua-based mines. Other holdings have also risen sharply under Golden Prospect’s ownership, to the extent that the value of its assets rose 63 per cent in 2019 and the trend has continued into this year.
Today, Golden Prospect’s assets are valued at 41p a share, yet the shares themselves are priced at 28.9p. Investment trusts often trade at a discount to the underlying value of their assets but Golden Prospect’s 29 per cent discount seems excessive.
The company is making progress and it is invested in firms that are well run and delivering growth. The portfolio is also well diversified, with businesses based in North America, Latin America, Australia and Africa. They are largely producing gold, but there is some silver mining too, as well as palladium and a tiny bit of zinc.
This combination would be attractive at many stages in the economic cycle but it is particularly appealing now, when panic is sweeping the market.
Midas verdict: At 28.9p, Golden Prospect’s shares reflect neither its current value or future prospects. Investing in junior miners is never risk free so this stock is not for the most cautious investor but for those looking for a different way to access gold, these shares are a buy.
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