In Uncertain Times People Hedge With Gold – It's Good To Be A Resource Company Right Now

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The global economy has been notably turbulent and uncertain over the last few years, and this looks set to continue for a while. The effects of the pandemic are still being felt, with lockdowns and travel issues ongoing in some countries, leading to diminished trade. In addition, the war in Ukraine and the impact on energy prices have led to worldwide energy rises and inflation. 

When times are economically risky, especially when faced with rising inflation, investors have always raised their exposure to gold. After all, the metal has been highly valued for at least 6,000 years, and that is unlikely to change any time soon. 

It was initially used for trade, evolving into currencies linked to the gold standard. Finally came fiat currency, which has considerable benefits, but increased risks of inflation and deflation. Consequently, people still like to keep some exposure to gold to minimize volatility - such as now.

Gold as a hedge against inflation 

The most common use of gold for modern investors is a hedge against inflation. It is a proven and effective strategy, especially long-term. It has also been shown to help protect against rising asset prices and currency debasement.

At present, inflation is already high, and some analysts predict that the world economy will enter a new inflationary era. As a result, it is no surprise that financial experts have been advising exposure to the precious metal, and, as a consequence, gold prices are strong.

For example, the French multinational investment bank Société Générale has been strongly recommending that investors increase their exposure to gold. In a recent report, the bank said it now holds its maximum allocation of 5%, half of its commodity exposure. Its analysts predict that gold will hit $2200 in 2Q.

Already this year, the price has reached $2050 per ounce. Some experts, such as Goldman Sachs, had forecast that gold would hit $2150. However, after the outbreak of the Russia and Ukraine conflict, it has since raised that prediction to $2500 by the end of the year. 

Even if the pandemic and war end next week, inflation will remain for the foreseeable future, as will the desire for gold in a portfolio. As a result, resource companies of all sizes have been scrambling to meet demand. 

A great example is Goldrange Resources, a private-sector resource company that focuses on Africa. Chief Executive Officer of Goldrange, Helen Ruth Pein, says, “The company was only founded in 2020, and things have moved incredibly quickly. The ongoing situations causing such global uncertainty will hopefully ease soon, but I don’t see the current high levels of gold dropping much for years.

“Investors, no matter their experience, understand how crucial it is to have gold in a balanced and hedged portfolio. The events of the last few years have really driven that message home.  Add in the fact that high interest rates are likely to linger for a while, coupled with considerable future uncertainty, and I think gold and other precious metals will make up a significant part of investments for a long time.”

Pein knows what she is talking about, with over 30 years as an economic geologist in the natural resources sector. She is a founder of Panex Resources, and a non-executive director of UK-listed companies, Alkemy Capital and Trident Royalties. Supported by an experienced management team and fellow expert geologists, she has a deep understanding of the sector.

The resource sector is competitive, but there is more opportunity for those with experience

“Precious metals, particularly gold, have always been in high demand, and it’s a very competitive sector,” Pein says. “However, for those with experience, there is a lot of potential right now, especially if you operate in certain regions.”

Goldrange operates in Africa, which both Pein and the management know well. “I have worked in Africa for over three decades, and there is so much potential there, especially now. Countries that are rich with resources are opening up, and smaller, more agile companies like ours can acquire a unique portfolio of highly prospective multi-million-ounce projects in several locations.

“Many African countries are benefitting both from operations like ours and also ongoing global demand. As a result, resource companies are encouraged across the continent,” Pein explains.

“For example, we currently have three projects in two countries and are evaluating a few more. One is in Tanzania, a well-established gold producer that has been gradually establishing more mining-friendly taxes. The other country is Ivory Coast, which boasts one of the fastest-growing economies in Africa and one that has already revised mining regulations to make resource extraction easier.” Ivory Coast continues to attract significant investment with its highly prospective geology for gold mineralization and is still relatively underexplored.

Goldrange’s approach is certainly proving successful. As well as acquiring three sites in less than two years, they have raised over C$5 in financing.

Pein says, “Now is a good time to be a gold miner, and Africa is a great place to operate. No matter the cause of inflation, it will always fluctuate, and precious metals will remain a safe bet for investors to protect themselves. Unfortunately, though, inflation may linger on for some time even after things return. But even when that drops to normal levels, it is still advisable to have some gold exposure. There’s a reason it has been valued for thousands of years.”

As inflation rates in countries like the US and UK reach their highest levels in decades, investors will do what they always do – buy precious metals, especially gold. This places nimble gold mining and resource companies in the enviable position of helping people hedge their savings, benefitting the economies where they operate, and getting the funds they need to expand. It is a good time to be in the resources industry.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice