Our gold mining shares will protect us against tariff wars

Telegraph

08-04-2025

Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest.
At least 'liberation day' means that investors now know what tariffs America will impose upon imported goods, albeit on a country-by-country basis and one that is far from clear or simple.
What investors don't know is the duration of these levies and whether any deals can be implemented to erase or reduce them.
Given the prevailing uncertainties, it makes sense for any portfolio to have an allocation of some kind to so-called 'haven assets'. Gold qualifies as one of those and we can continue to hold on to both Resolute Mining and Pan African Resources, even if both bring company-specific risk – particularly because of where they operate.
Resolute has assets in Mali, where the military government is taking a harder line on taxes and extracting revenue for the state, while Pan African must contend with South Africa's creaking electricity grid.
Last December's acquisition of Tennant Consolidated in Australia brings welcome geographic diversification and a big potential kicker to Pan African's overall group gold output. But it does mean a higher debt pile, too.
At least Pan African's stock trades on a lowly multiple of earnings, perhaps as a reflection of wider scepticism as to whether gold prices can maintain their strong run.
Gold may be due a pause for breath, but it could yet benefit from the lack of visibility on what the leader of the world's largest economy, and home to its reserve currency, single largest stock market and single largest bond market may do next.
The Republican party under Donald Trump has many strands and there seem to be different goals when it comes to tariff policy. Some seek a deal to extract better trading terms or competitive advantage in the fields of market access, minerals or technology.
Others wish to use the revenue raised by tariffs to facilitate cuts in US rates of income tax. The US president talks more of the long-term gain of bringing jobs back to America and boosts to domestic output and growth, even if this comes at the cost of possible near-term pain in the form of higher prices, trade frictions and slower growth.
The lack of clarity when it comes to the thought processes behind Trumponomics makes it hard to assess what the end-game may be. However, we can offer three thoughts.
First, the latest round of tariffs takes the proposed level of such duties to their highest level in over a century. It is hard to see how Trump voters will welcome the initial extra costs, especially on agricultural products that America does not make for itself. The best cure for high prices, however, is high prices. And this column feels the tariffs could ultimately be deflationary, not inflationary, as they will destroy demand – or at least force production of cheaper alternatives.
Second, the tariffs unveiled on April 2 exceed the levels set by the Smoot-Hawley Tariff Act of 1930. The tariffs did not cause the Great Depression of the 1930s, but they contributed to it – alongside excess debt – to the 1929 crash, banking crises and policy error. The 1930s were marked by deflation, not inflation, so it may be unwise to assume that the tariffs lead to a sustained bout of price rises this time around.
Finally, those companies that look set to be hardest hit are those that derive a big percentage of their sales from exports to America and source a lot of their materials and products from Asia, where the new tariffs look particularly punitive.
Of the Questor portfolio, names such as Burberry and Dr Martens look exposed here and both already have difficult turnarounds ahead of them, so we shall have to think carefully. Sentiment may also turn against emerging market plays such as Standard Chartered and Ashmore.
The exemptions offered to oil and gas and pharmaceuticals offer some comfort to our positions in Shell and GSK, while the business models at utilities National Grid and SSE may reaffirm their value as defensive ballast, given how demand is relatively insensitive to the economic cycle.
Meanwhile, it is tempting to think that real estate plays like Derwent London, Shaftesbury Capital and Town Centre Securities may be relatively immune to Trump – given the UK-centric nature of their business.
A wider economic slowdown could puncture that theory. At least their shares trade at big discounts to net asset value and, ultimately, valuation will remain our guide going forward as to when a stock may represent a risk or an opportunity.