The war in Ukraine does not seem to be abating as attacks by Russian troops on multiple targets increase, including, unfortunately, civilian buildings and hospitals in addition to public infrastructure. In response, the G7 countries continue to impose sanctions on the Russian economy and the wealth of the Russian oligarchs and President Vladimir Putin.
The economic consequences of this conflict in Ukraine are higher prices for various commodities and foodstuffs such as wheat and corn traded on the financial markets, higher prices for petrol at the pump for motorists and more expensive electricity and gas bills for businesses and households.
And if that weren't enough, the dreaded boomerang effect of the sanctions is now exacerbating the situation. Economists fear these sanctions could also have a longer-term impact on the global economy, which is why analysts are now revising growth estimates significantly downward.
Central banks are carefully assessing risks to growth from potential stagflation as stagnation in economic activity will be accompanied by high inflation, the latter on track to worsen in the coming weeks as fossil fuel prices remain high. The next monetary policy meeting will, therefore, also take this scenario into account.
Last week, the European Central Bank decided to keep lending rates at their current near-zero levels to signal that EU leaders also want to support the European economy in the humanitarian crisis caused by the war. On Wednesday, the Federal Reserve will decide how much to raise the fund's interest rates to try to calm record inflation, which may not be as tight as expected before the war in Ukraine broke out.
All of these factors together are currently causing quite pronounced uncertainty in the markets. It also comes with a good dose of volatility, and when confronted with the latter, traders tend to panic because most don't really know what to do. As a result, fluctuations have recently been observed in the benchmark indexes for the U.S. stock market.
To protect the value of their assets from the negative effects of high volatility, investors may want to hedge against the risks of the current macroeconomic conditions. One way of doing so is to invest in precious metals.
Gold has been in higher demand since the start of the war in Ukraine, as evidenced by the fact that since then, gold contracts maturing in April 2022 have been trading in the futures market well above $1,900 an ounce. Gold was at $1,923.35 at the time of writing, up over 5% year to date.
Since the factors driving the precious metal higher aren't those that ebb away after a few rate hikes, but rather last for several months, it would be worth increasing exposure to changes in the price of gold by investing in publicly traded miners as they typically post higher gains than the commodity.
My pick is Iamgold Corp. (IAG, Financial), a Canadian mid-tier gold producer with mining operations in Burkina Faso, Suriname and Canada. The company is also developing gold projects for future mines in Senegal and other mining districts throughout the Americas and West Africa.
Should higher gold prices materialize in the future, this company has several catalysts that could propel its share price to very high levels.
Thanks to the reopening of some mining activities that will take place in portions of the underground deposits in Westwood, Canada, where the gold concentration is above average, and following the successful completion of the refurbishment works of activities operated at the Rosebell Mine Mill in Suriname, Iamgold should produce significantly more ounces this year than the 601,000-volume mined in 2021.
The Rosebell Mine will also contribute to higher throughput as this year, particularly as we look toward the second half of 2022, is expected to benefit from less intense rainfall than previous years, thereby reducing the risk of undue disruption to open-pit operations.
In regard to recoveries, which are also critical to the quality of the mine, they show a gradual improvement affecting almost all deposits, including the Westwood satellite in the search for high-grade ore.
At Iamgold, the type of technique used to produce the precious metal makes all the difference in this world compared to other operators, as 90% of the total volume and maybe even a bit more comes from open-pit or near-surface deposits. This should not be neglected, especially for those unfamiliar with gold producers, as the less deep you have to go to extract the precious metal, the lower the cost.
Although costs are expected to increase due to record inflation driven by higher commodity prices, the total cash cost per unit produced this year will be below $1,115 to $1,150 per ounce.
The location of the mines is also fundamental to the company's success, as all three deposits are located in countries with pro-mining legislation. In Burkina Faso, local gold sales may be at a higher price than the market, which is good for Iamgold. After a bird flu epidemic devastated chicken farming (the African country's third-largest source of income) in December, Burkina Faso will likely rely more heavily on the first two sources, gold and cotton, to build its 2022 gross domestic product. As a result, these two commodities are likely to rise during the trading session.
The balance sheet is far from its peak, but as gold prices rise and more ounces hit the market, Iamgold should improve its financial position and secure resources to develop gold projects for future production.
These projects include the activities in Senegal, where the internal situation has returned to normal after clashes occurred several times over the past year between protesters from the pro-democracy movement and state security forces.
At $3.14, the stock is not cheap as it is currently trading above its 50-day moving average of $2.89 and above the 200-day moving average of $2.84. The market cap is $41.52 billion and the 52-week range is between $2.16 and $3.85.
The 14-day relative strength index of 53 suggests the stock is neither overbought nor oversold.
With all the catalysts and the expected surge in the price of gold, I think this stock is definitely worth a look.
