Is gold part of your investment portfolio? Because it should be.

When global risks increase, gold plays its steady hand 

There’s a reason gold universally stands for good fortune, a ‘sure’ thing. If there’s anything we’ve learnt over the last few years, it’s that nothing is certain. And the recent inflation report out of the US could have some heavy implications on the broader economy. 

The last thing we need in our investment portfolio is more uncertainty. Been there, done that and paid the price, right? 

So let’s talk about gold. 

It’s highly liquid, highly versatile, and scarce. It retains its value, and it’s a stable investment thanks to its ability to hedge against inflation. 

Simply put – gold is worth the investment 

There’s an old saying about how an ounce of gold in Roman times bought a nice suit, and today – an ounce of gold still buys a nice suit. What does this tell us? Even as currencies fluctuate, gold maintains purchasing power. 

And when you invest in gold you are part of something bigger. Put the aesthetic appeal of gold aside for a moment. Beyond its value as a precious metal, gold, just like other minerals, is needed. 

Without minerals, life as we know it would look a lot different. It’s not just jewellery and gold bars, gold has practical applications too – it supports innovation in many sectors from microcircuitry, architecture and healthcare to automotive, defence and aerospace industries. Minerals play a part in everyday life – from the food we consume to the tools we use and the things we create!

Let’s also not forget how gold mines have the power to enrich the people and communities they operate in. In Ghana, where Pelangio Exploration Inc. has three exploration projects, the gold mining sector plays a vital role in the economy, as it attracts more than half of all foreign direct investment and generates more than one-third of all export revenues. The mining industry is also the largest tax-paying sector in the country and makes a significant contribution to GDP and employment. 

If the demand for gold is still high, why are exploration companies still struggling for investment?

Consider this: the price of gold rose 15% in 2023, reaching its highest annual close on record at $2,078 USD/oz – and it recently surged significantly higher (on April 24, 2024, it was $2,343.10 USD/oz!).  And yet, gold mining stocks have been extremely undervalued – the lowest they’ve been in 25 years. 

Everyone seems to want and need gold – but few people pause to think about the crucial role of exploration. Before a mine is productive, it needs to be discovered and evaluated. This involves searching for indicators of gold deposits, and once found, validating their limit and grade before the mine can even begin producing. It can take decades from the time of discovery to production. Juniors in particular have one of the toughest jobs in the industry – finding and advancing new projects can be difficult and capital-intensive. 

Juniors can outperform seniors when gold prices were high…but they feel the sting more when gold is under pressure.

Investment in gold exploration and mining has declined significantly over the past decade. Canadian mining funds plummeted 82.5%, from $16B to below $2.8B since 2010 (Bloomberg, paywall). Instead, investors have placed a premium on sexier cryptocurrencies, tech stocks and online financial tech brokers like Robinhood rather than more traditional investments like gold. In fact, cryptocurrency is the most common investment held by Gen Z investors, a trend likely fueled by technological change, social media and easier access to investing. 

Other commodities like lithium saw a surge in investment in recent years fueled by green technologies and batteries for electric cars. Countries in the developing world began to tap into a new revenue stream. The market was flooded and over-investment in production caused the bubble to burst. In one year, the cost of lithium dropped a staggering 80% and as of December 2023 lithium prices sat around $13600 a ton. 

It’s never been a better time to review your portfolio and your investment with gold. 

The story of gold may have started in Ancient Egypt but it’s hardly dated – it’s really about what’s happening in the next 10 to 15 years that matters. 

I’d argue there’s limited downside and outsized upside for backing gold – and investing early in the development cycle of the right gold junior, one that has an excellent reputation in a safe jurisdiction can reap huge rewards. I’ve said it before and I’ll say it again: Gold is resilient. It’s persistent. It's worth the investment and we need companies like Pelangio Exploration Inc. to find future gold mines!