Something is stirring again in the gold price. That's why I looked at Lundin Gold. Since early August, a solid recovery has taken shape in the metal and in gold stocks, and the fundamentals behind it look promising. Central banks bought a net 289 tonnes of gold in the second quarter, in the middle of the correction: 62% more than a year earlier and the largest amount ever recorded for a second quarter. They clearly used the weakness as a buying opportunity. At the same time, investor interest seems to be picking up again. After two months of outflows, July saw more capital flow into gold products like GLD than flow out.

I also see tailwind from US rate expectations, which have eased again on the back of softer inflation data. That doesn't take a rate hike off the table, but the market now expects one no earlier than December, compared with September. That eases upward pressure on the US dollar, which is another potentially supportive factor for gold.

The risk I keep watching is the Iran conflict, especially the Strait of Hormuz and its impact on energy prices. A fresh escalation could reignite both inflation and rate expectations, and that would weigh on gold.

I don't know for certain whether this recovery marks the end of the correction since January's all-time high, but the odds for a bottom look good. So I decided to open a new, small position in gold equities. I chose the Canadian gold producer Lundin Gold. One argument for Lundin Gold jumps out immediately: it's one of the few companies in the sector that pays a dividend. That dividend combines a fixed quarterly payment of C$0.30 with a variable, performance-linked component. Last quarter, the company paid out a total of $1.08 per share, which annualizes to a dividend yield of almost 5%. I see that dividend as well covered, and that's where I see the quality of the business. Another quality name in the sector is Agnico Eagle Mines (AEM), which I wrote about in March.

Right now, the company runs a single producing mine, Fruta del Norte in Ecuador. That concentration is a real risk: a prolonged production outage or government intervention would hit Lundin Gold far harder than a more diversified producer. Still, Fruta del Norte is an exceptional asset. With very high gold grades, it ranks among the strongest large gold mines, and all-in sustaining costs of roughly $1,000 to $1,200 per ounce are remarkably low. That keeps the mine highly profitable even at much lower gold prices, and it generates the cash flow that funds the dividend and further growth. The balance sheet is solid too.

There's additional upside from exploration around Fruta del Norte: early drilling has kept delivering very high-grade results, and the area could develop into a larger mining complex.

All told, I see Lundin Gold as a high-quality gold investment, and I'm willing to pay a valuation premium for that. The stock trades at a price-to-cash-flow ratio of 16.6, based on free cash flow, slightly above its historical average of 14. The resulting P/CF yield of 6% is still attractive, combined with the expected dividend yield. Because I expect the gold price to keep rising over the long run, Lundin Gold makes a nice addition to my gold portfolio.

Is Lundin Gold (LUG) a buy? I consider Lundin Gold a buy for a first, small position in gold equities. The stock offers a dividend yield of almost 5%, backed by low all-in sustaining costs of roughly $1,000 to $1,200 per ounce at its Fruta del Norte mine, and trades at a price-to-cash-flow ratio of 16.6, slightly above its historical average of 14. The main risk is that Lundin Gold depends entirely on this single mine.

Disclaimer: This newsletter is for informational purposes only and does not constitute investment advice. I am not a financial advisor. Always do your own research before making any investment decision.

Disclosure: I may hold direct or indirect positions (including options) in any securities mentioned in this newsletter. My opinions are my own and always honest.