This has been a rollercoaster year for investors in gold.
From last October, the price started to fall, with large drops in both April and June. By the start of July, the price had fallen as low as below $1,200 an ounce - the lowest level seen in nearly three years.
But now, prices seem to have stabilised, and turned around. Gold is now trading above $1,400 again.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Here at MoneyWeek, we think there's always a place for gold in your portfolio. It's the best insurance against a mass loss of faith in the financial system, which remains a serious threat.
However, the plunge in the gold price has also flung up some very interesting opportunities in the gold mining sector.
Today I want to take a look at one in particular
Central banks will keep monetary policy loose
However, as my colleague John Stepek points out, it is important to realise what the Fed is and isn't going to do. Firstly, the Fed's statement was always conditional on continued economic strength. And this is Ben Bernanke we're talking about. The Fed will err heavily on the side of keeping monetary policy as forgiving as possible, particularly if the market keeps throwing "taper tantrums".
In any case, it merely said that it would reduce the amount of assets that it buys each month, not stop QE entirely. This means that, whatever happens, money printing will still continue, even if at a slightly slower pace.
And in any case, other central banks may well end up taking up the slack from the Fed. The Japanese are already flooding the world with their own QE for a start.
And then there's Europe. There's been a lot of talk about how the European economy has turned a corner, with eurozone-wide GDP increasing. But let's not get carried away. As Capital Economics points out, growth is still barely positive and well below the level needed to pay down debts or create jobs.
In any case, the combined figures for the wider euro area hide real weakness in several countries. The Italian economy is still shrinking, while Holland usually seen as one of the sensible northern' countries - is currently in recession, with household spending plunging.
So, there's a still a very good chance that the European Central Bank will have to turn on the printing presses.
Asian consumers are snapping up gold
This confidence in gold as a store of wealth has been most pronounced in India and China. Despite government attempts to limit imports, including extra tariffs, the amount of gold imported into India rose by nearly half in the first half of this year.
And when you look at the catastrophic performance of the rupee this year so far and the government's feeble attempts to deal with it - you can see why your average Indian consumer would rather have at least some of their savings sitting in a barbarous relic like gold.
Similarly, the Chinese have also gone on a gold-buying spree. According to the World Gold Council, demand for gold jewellery went up by 54% year-on-year in the second quarter.
How to profit from the gold rebound
One share that looks particularly good value to me, is South Africa's DRDGOLD (NYSE: DRD). Most mining companies dig gold out the ground. This is high-risk because of the large capital costs and large chance of failing to find any of the precious metal. Get the geology wrong and you can quickly go bankrupt, especially if you only own a few mines.
DRDGOLD takes a different approach, treating the discarded rubble left by existing mines. This enables the company to extract any gold left behind after the original mining process, with a relatively high degree of confidence. The company is now also using nanotechnology to boost yields even further.
At the moment, the group owns the rights to re-mine over 100 waste dumps and dams. This means that its equipment is constantly operating (so no wasted downtime), and it also helps to spread the risk further.
Thanks to its relatively generous pay packets, which include a profit-sharing scheme, the company has largely avoided the round of strikes that have hit production in the rest of the South African industry.
The company is also thinking about using similar techniques to extract uranium as well, which would broaden its revenue stream.
And most importantly, despite its rising output, the stock is still extremely cheap. It currently trades at 7.9 times earnings. It also offers a solid dividend yield of 4.5%.
If you're interested in more gold mining opportunities, we wrote about the mining sector generally, and gold miners in particular, in MoneyWeek magazine last month. Also, my colleague Simon Popple writes a newsletter devoted to opportunities in precious metals miners you can find out more about it here.
Our recommended articles for today
Britain picks itself up but how long can it stay on its feet?
Reality dawns on the China-growth myth
Stay up to date with MoneyWeek:Follow us onTwitter,FacebookandGoogle+
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
These 2 stocks are set to soarTips The returns from these two aluminium and tin stocks could be spectacular when the commodity cycle turns says David J Stevenson.
-
A lesson for investors from a ill-fated silver mineAnalysis Mining methods may have changed since the industry’s early days, but the business hasn’t – digging ore from the ground and selling it at a profit. The trouble is, says Dominic Frisby, the scams haven't changed either.
-
The natural resources industry is in a tight spot – which is bad news for the rest of usOpinion The natural resources industry is in a bind. We need it to produce more energy and metals, but it has been starved of investment, plagued by supply chain issues, and hobbled by red tape. That’s bad news for everyone, says Dominic Frisby.
-
How to invest in the copper boomTips The price of copper has slipped recently. But that’s temporary – the long-term outlook is very bullish, says Dominic Frisby. Here, he explains the best ways to invest in copper.
-
Why investors should consider adding Glencore to their portfoliosTips Commodities giant Glencore is well placed to capitalise on rising commodity prices and supply chain disruption, says Rupert Hargreaves. Here’s why you should consider buying Glencore shares.
-
How to invest in the multi-decade boom in industrial metalsTips The price of key industrial metals has already begun to rise. The renewable energy transition will take them higher, says David Stevenson. Here's how to profit.
-
Avoid China’s stockmarket – here’s what to invest in insteadOpinion China’s stockmarket is not a good place for investors to be. But you can't just ignore the world's second-largest economy, says Dominic Frisby. Here, he picks an alternative China play.
-
6 gold funds to buy to add exposure to the yellow metalGold Gold funds are one of the best ways of adding gold to your portfolio. We pick some of the best gold and gold-mining funds.
