Rising fears of a “second wave sell-off” hover over global markets this week, turning investor attention to the potential of gold to offset losses should the market suffer another bout of nerves.
No doubt the new generation of post-crash retail investors who have made money since the market bottomed in March got a major fright when the Dow Jones dropped 7 per cent in a single session on June 11.
For many seasoned investors the way to play such volatility is holding gold - asset allocation analysts regularly suggest investors hold 5 to 10 per cent of the commodity in a diversified portfolio. That’s because of the proven ability of the yellow metal to offer an investment choice that is not correlated to the wider market.
Gold’s “non -correlation” was most notably revealed during the period after the GFC when stocks slumped 50 per cent and gold prices moved substantially higher.
The markets in 2020 do not present the same hazards as 2008-2010 but the unconvincing nature of the latest recovery, along with its inherent volatility, will make gold worth examining in all its forms - bullion, Exchange Traded Funds and listed gold mining companies.
What’s more, though inflation remains a side issue at present, a second round of global money printing has once again raised the prospect that gold’s ability to act as an inflation hedge will be wanted again in the future.
As Ipek Ozkardeskaya at Swissquote put it on Monday: “Speaking of safe havens, gold is still fighting back the solid $US1750 per oz resistance. Mounting risk aversion and decline in US yields should continue giving a support to the yellow metal above the $US1700 mark. A break above $US1750 should trigger a decent rally and encourage a quick rise to the $US1780/1800 area.”
Gold prices moved in a tight range for six years between 2013 and 2018 of $US1100 to $US1350. This time last year they were $US1400 and today it is near $US1714.
Whether gold will move substantially higher - or whether it suits every investor - is an open question. But for Australian investors, the issue will always be whether to build an allocation in a “pure play” on the commodity or through shareholdings in gold miners.
Conservative investors have been doing well out of gold this year piling into Exchange Traded Funds, which reflect the movements of bullion, but it is with individual gold miners where the real money is being made.
The big three gold ETFs are BetaShares Gold Bullion (Hedged), ETFS Physical Gold and Perth Mint Gold. The global benchmark for products in the area is the US-listed SPDR Gold Trust.
For Australian investors, gold - the commodity and its related ETFs - has returned around 10 per cent a year since 2015, but it is among miners represented by the S&P/ASX All Ordinaries gold index where returns have powered ahead - the index has brought in 21 per cent a year.
Among the well-backed leaders in locally listed gold stocks are Newcrest, Northern Star, Evolution, Resolute, St Barbara and Gold Road.
Meanwhile, in the most recent rebalance on the ASX carried out by Standard and Poor’s, two gold miners ascended the staircase as Saracen joined the Top 100 stocks and Perseus mining found its way up into the Top 200.
More Coverage
Join the conversation
Why more investors put their money before the environment
Sustainable investing has been a growth area in recent years but a new study suggests some people are putting it on the backburner.
Read more
Why investors will bolt if property taxes change
Tinkering with property taxes drives investors out of the market – it’s just happened in New Zealand and now Canberra is looking at a very similar picture.
Read more