If I had invested  £1,000 in Serabi Gold (LSE: SRB) a 12 months in the past when it was a penny share, I might now be sitting on an funding price £2,680.

Not a penny share, Serabi has soared 168% over the previous 12 months.

It may be argued that the explanations behind that rise nonetheless counsel lots of progress potential. Maybe much more than we’ve seen up to now 12 months.

So ought to I purchase the share right now?

Rising manufacturing in a powerful market

There are a few predominant causes we’ve seen the Serabi Gold share price soar. One is its enhance in manufacturing.

Final 12 months, the miner produced 37,520 ounces of gold. That was progress of 13%. The newest quarter noticed Serabi’s output hit a five-year excessive. This 12 months, it expects 44,000-47,000 ounces of manufacturing. That might be progress of 17-25% on prime of final 12 months.

From an investor’s perspective, that’s excellent news and will help the next share valuation. Mining has excessive fastened prices, so spreading them over higher manufacturing is usually constructive.

The second predominant purpose for the share price leap has been hovering gold costs. In an atmosphere of heightened geopolitical and financial uncertainty, traders have as soon as extra flocked to gold as a perceived haven and it not too long ago hit an all-time excessive.

Increased gold costs are additionally good for Serabi and will additionally result in the next share price.

Why I don’t really feel I’ve missed out

So by not shopping for a 12 months in the past, I missed a 168% return (with the potential for extra to return). However I don’t remorse my alternative and in reality nonetheless don’t plan to put money into Serabi.

As I wrote in November when Serabi was cheaper, “despite the incredible price rise over the past year, I see this penny share as a potential bargain even now. But the risks involved simply exceed what I am comfortable with as an investor”.

I used to be proper that it was nonetheless a possible cut price: in simply over two months since writing that, the share has gone up by a 3rd.

However the dangers I recognized then additionally stay considerations for me. There are two predominant ones.

First, Serabi is a Brazil-focused gold producer. So it lacks diversification both geographically or when it comes to metals mined. Meaning there’s a geopolitical danger. For instance, if the Brazilian authorities decides to lift taxes, Serabi can’t transfer its mines.

The second danger is gold costs. That is principally a cyclical market – gold could be very excessive proper now. It could go greater nonetheless, however eventually it’s going to crash. Then it’s going to begin to rise once more earlier than hitting a brand new excessive once more years or a long time from now.

There’s cash to be made as an investor on the proper factors in a cyclical market. However with gold close to file highs my concern is that we’re on the flawed stage within the cycle. I might fairly purchase gold miners’ shares when the yellow steel is affordable, not costly.