The price of gold has risen by over 10% since the start of the year. It has been boosted by tensions surrounding North Korea, as well as the potential for higher inflation and uncertainty regarding the global macroeconomic outlook.
Looking ahead, there could be a further rise in the price of gold. Those same catalysts have not yet faded away and, with stock markets now being at record highs, gold could remain an attractive asset for long-term investors. With that in mind, gold shares such as SolGold(LSE: SOLG) and Fresnillo(LSE: FRES) could be worth buying and holding.
The gains in stock markets across the globe in 2017 have been exceptional. For example, the S&P 500 and the FTSE 100 have both reached record highs. They have been fuelled by improved investor sentiment, with the potential for higher spending and lower taxes in the US being a key reason for this.
Looking ahead, those valuations may come under pressure due to the potential for a weakening macroeconomic outlook. Brexit talks are not progressing particularly well according to recent reports, while significantly higher spending and lower taxes in the US may not come to fruition to the same extent as had previously been anticipated. These factors could cause global economic growth to come under pressure, which may lead to increasing demand for gold among more risk-averse investors.
At the same time, the uncertainty regarding North Korea remains high. Although news regarding further missile tests has been absent of late, the outlook remains highly fluid and potentially volatile. Should it deteriorate, the gold price would have a very good chance of rising.
A higher gold price could be good news for SolGold and Fresnillo. Investor sentiment towards the companies could improve and potentially lead to higher share prices.
SolGold also seems to be making encouraging progress with its exploration programme. It reported positive results from its Cascabel project in Ecuador on Friday. The company will seek to expand its drilling programme over the medium term, and it is relatively confident about the prospects for further discoveries. While it remains a relatively risky stock which is highly dependent upon news, a mix of further success in its drilling programme and a higher gold price could push its share price higher.
Likewise, Fresnillo may also have investment appeal. The company is forecast to increase its bottom line by 45% this year, followed by further growth of 17% next year. The stock benefits from being a major silver producer, since it provides a degree of diversity. With it trading on a price-to-earnings growth (PEG) ratio of 1.5, it seems to offer excellent value for money for the long term. And with dividends being covered 2.1 times by profit, it could become a solid income play, even though its yield of 1.6% is not particularly high at the present time.
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Peter Stephens owns shares in Fresnillo. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.