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By Gary Newman | Monday 26 December 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
When it comes to picking a company which is going to perform well over the course of a year, I believe that you need to consider the macro-economic factors that are likely to affect the sector in which it operates.
Given the general euphoria and money flowing into equities which we have seen since Trump won the US elections, we could be forgiven for thinking that all is suddenly great when it comes to the world economy, but I believe that is a long way from the truth and that in the coming year we will see economic turmoil rear its head in a number of areas once more – the Eurozone being amongst them.
During the last few weeks you could be forgiven for thinking that precious metals such as gold are doomed, and that there is no longer any interest in them. But in the background to the recent substantial drop in the prices of gold, there have been buyers snapping it up – Russia for instance recently revealed that it bought another million ounces of gold during November, and its accumulation of the metal has been gathering pace during the latter half of 2016.
I also think that the market has underestimated the effects of the recently announced Islamic Shariah-compliant gold standard, and the additional levels of demand that this is going to cause for the metal. For the first time, gold is now acceptable as an investment in Islamic finance and is likely to attract large amounts of money from the Middle East, and elsewhere.
Some will argue that betting on gold currently is going against the trend, and whilst that is true, I also believe it is largely about whether you see the gold price going higher in 2017 than the current level of around $1,130/oz – rather than needing to be in right at the very bottom, wherever that may turn out to be (personally I still see that as around the $1,110-1,120 area, but may already have been seen).
It may not be the most exciting share on the market, but I believe that FTSE100 listed Randgold Resources (RRS) offers the potential for a very good return during 2017, with 50% or more being achievable, I believe.
That is no mean feat for a company that is worth over £5 billion, and although you won’t get rich from the dividends, a yield of 1% or so typically is still worth having. It is also a company that has a very strong balance sheet and manages its reserves in a very conservative way, ensuring it is still able to survive and prosper even during downturns in commodity prices.
Currently the strength of the US Dollar is a concern to those looking to invest in gold, but there seem to be plenty of doubts over the Fed announcement that it will raise interest rates three times during 2017. This is also a factor that is now known by the market and therefore should already be priced in to some extent and reflected in recent sentiment.
So from the current share price of a little over 5,800p per share I can see decent risk/reward by investing in gold, and the best way for many to do so is by buying shares in a company like Randgold that offers a leveraged play on the commodity itself.
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