Gold investors had a disappointing year in 2012. Despite some dramatic ups and downs, shareholders in the largest gold ETF, SPDR Gold Trust (NYSEMKT:GLD), saw the value of their shareholding rise by just 6.6% over the year. Although this is a respectable return, it's a far cry from the double-digit gains of recent years.
Similarly, several big gold-mining stocks staged a late rally to deliver some gains by the end of the year but, overall, the performance of the gold-mining sector was less than sparkling, with many miners proving unable to deliver profit growth, even with sustained high gold prices.
So what's in store for 2013? I've been looking at the market and have come up with four gold investments that I think could deliver strong gains this year.
1. SPDR Gold Trust
I think that the price of gold could resume its upward trend in 2013 after last year's consolidation. Not only are central banks buying serious amounts of gold -- a topic I looked at recently -- but the ongoing money-printing policies of many central banks mean that investors will continue to use gold as a hedge to protect themselves from the risk of runaway inflation.
Historically, private investors wanting to track the price of gold chose to invest in gold-mining shares -- there wasn't really much alternative. The introduction of gold ETFs changed this situation completely, and gold ETFs such as SPDR are the best way to invest in gold if you want to avoid the operational and political risks of gold miners.
2. Randgold Resources (LSE: RRS) (NASDAQ: GOLD)
Randgold Resources is the biggest gold miner in the FTSE 100 (UKX) and has outperformed the price of gold by a factor of three over the last 10 years.
However, Randgold's share price has fallen by 25% over the last three months, which I believe represents an attractive buying opportunity. Development of Randgold's Kibali mine in the Democratic Republic of Congo -- its biggest yet -- is proceeding on schedule, and the firm is expected to deliver rising production and profits over the next couple of years.
Although it's had a few setbacks recently -- a fire at its Tongon mine, for example -- these are just glitches of the kind that Randgold has proven itself well able to deal with. I expect Randgold's share price to bottom out fairly soon and start to recover as the year progresses.
3. Kirkland Lake Gold (LSE: KGI)
Shares in Kirkland Lake Gold have fallen by 60% over the last year, as technical problems at its single mine in Canada have prevented the company from expanding its production capacity from its present 100,000 ounces per year to a planned 200,000+ ounces per year.
However, many of these problems have now been overcome and Kirkland expects to be able to start ramping up gold production in the middle of 2013.
Kirkland is also well funded and has an experienced management team who own a 20% stake in the business, aligning their interests closely with shareholders.
4. Highland Gold Mining (LSE: HGM)
Highland Gold Mining operates a number of gold mines in Russia, has net cash of $150 million (at 30 June 2012), no debt, and profitable, growing production. It pays special dividends whenever it has sufficient surplus cash, and shareholders received a 4.8 pence per share payment in October 2012, equating to a yield of more than 4%.
Given this, you might wonder why the company's share price fell by 46% last year, and why it trades at a forward price-to-earnings ratio of just 5.
The answer, of course, is that it has failed to meet investors' high expectations. Highland's earnings fell in 2011 and may have fallen again slightly in 2012. In common with many gold miners, the company has fallen victim to rising costs, which ate into its earnings in the first half of 2012 -- although management expected costs to stabilize in the second half of the year.
Highland Gold currently trades at 80% of its tangible book value and its share price is 25% covered by net cash. I think that the risks on growth and cost have been priced in and that the stock could now perform strongly, assuming that full-year results, due shortly, are in line with expectations.
Mine your way to a million
Investing in small, high-growth mining companies like Kirkland and Highland Gold does carry some risk, but the rewards for success can be very high.
Early investors in Randgold Resources, for example, have seen a 700% gain over the last nine years -- a gain that would really have helped you on your way to a dream, £1 million portfolio.
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