Prospects for shares in gold miners have never looked as good as currently, according to specialist investment trust Baker Steel Resources PLC (LON:BSRT).
There are strong signs that gold is at the start of a major upcycle, if previous cycles are any indicator, the London-listed fund said in a release.
And even though gold mining shares have made a strong recovery since the sector’s lows last month, valuations remain far below historical levels relative to the price of the metal itself, it added.
“The spread between gold equities and the gold price has reached extreme levels, with miners’ share prices largely still the same as when the gold price was just $1400/oz”
The current spot price is around US$1,700 per oz.
Earlier this week, Bank of America predicted gold would climb to more than US$2,000 an ounce next year and might even reach US$3,000 per ounce over the next eighteen months.
The huge stimulus measures unleashed by governments due to the impact of coronavirus are going to put fiat [paper] currencies under pressure, noted the US bank.
“Beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale. Rates in the US and most G-10 economies will likely be at or below zero for a very long period of time as central banks attempt to push inflation back above their targets,” analysts at BoA said.
Baker Steel said that even at the current price of gold, miners are set to become attractive dividend payers as they distribute more of their earnings.
Only yesterday, US gold mining giant Newmont increased its quarterly dividend by 79%.
Citing Newmont as an example, Baker Steel said more companies will be able to return upwards of a third their production margin to shareholders.
“If this were the case, investors would be pleasantly surprised as to the [dividend] yield of our holdings, which could easily be in excess of 5% for many companies and in double-digit territory for several more,” it added.
Newmont's share price has risen by a third since the start of 2020.