“Peak prices present gold producers with opportunities”, Steve Land, Franklin Gold Fund

Gold price was at its peak in August 2020. It went up to $2,000 even amidst the uncertain times. But later we saw a slow pace in the run. Many factors act as the price drivers for this yellow metal. Interest rates and inflation are major contributors.

But apart from all these many investors are considering this yellow metal as a safe asset to hedge in their portfolios. In a volatile market situation, hedging is the best possible way to avoid any risks related to the investments.

Gold is a metal with very low correlation. So investors are eyeing this metal to decrease potential loss: according to Steve Land, Vice President and Portfolio Manager of Franklin Gold and Precious Metals Fund within the Franklin Equity Group.

“Gold may benefit from bouts of elevated market volatility and mounting concerns over the Corona virus’s economic impact as investors seek perceived safe-haven assets. A classic feature of gold is its very low correlation with other asset classes, supporting increased interest in owning it as a portfolio diversification tool in uncertain markets.” He says in a report published last week.

Gold has more room to go

The metal’s price has increased almost 30% this year. Steve Land says that the precious metal still has room to run higher. As the volatile markets start to pick up, the prices might push back above 2,000.

These possibilities are still there because the US equity markets are getting weaker.

The Dow Jones Industrial Average lost 3% in a two-day selloff last week. The blue-chip index hit significant resistance at 29,000 points: Bloomberg reports.

Peak Prices

The increase of gold price is favorable for the mining companies and investors to earn elevated profits.

“In our view, peak prices present gold producers with opportunities to redefine themselves as a vital part of a diversified investment portfolio.” Steve Land says.

“In our view, the recent rally in gold prices should provide a significant lift in cash flow across the industry. Management teams look increasingly focused on turning higher gold prices into free cash flow that can be returned to shareholders via dividends or reinvested in high-return projects.” He further adds.

Investors are diversifying their portfolio to reduce forecasted risks. Gold is the most effective way to hedge against the volatile markets.

“Companies with multiple mining assets also help to diversify portfolio risk for generalist investors. Additionally, in a world dominated by index funds, we believe there are tangible advantages to having a larger market capitalisation and better trading liquidity.” Steve Land explains.

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