While it might not have felt much like it at the time, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) actually managed to finish last week higher. Despite a whopping 1.6% fall last Tuesday, the index regained its composure and moved higher through the rest of the week to finish the five trading days with an overall gain of 0.6%.
Leading the charge higher were gold and iron ore stocks. In fact, the top five gainers in the S&P/ASX 200 last week were all either iron ore or gold stocks!
Iron ore miner Arrium Ltd (ASX: ARI) led the gainers with a huge 26.1% jump, followed closely by gold miner EVOLUTION FPO (ASX: EVN), which saw its share price rally 22.1% to close at 80 cents. Following not too far behind were fellow iron ore producers Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) with gains of 15.2% and 14.5% respectively. In fifth place was gold producer Beadell Resources Ltd (ASX: BDR) which added 13.7%.
Further to run?
Judging by the past few weeks of trade, the share market in 2015 is shaping up to have plenty of volatility. That could help drive the gold price higher as investors seek out a safe-haven and hedge against the volatility. This scenario would obviously be good news for gold producers, particularly the higher cost, marginal producers.
It's a similar scenario for investors who think the iron ore price may have stabilised above US$70 a tonne and could be set to head higher. Once again, the biggest winners from higher iron ore prices will be those most leveraged to a higher price; in other words the high cost producers that can swing from loss to profit as the commodity's price moves higher.
Adding gold and iron ore stocks to your portfolio certainly isn't without risk. However, if you are tempted to maximise your portfolio's potential upside from exposure to these sectors, the producers with higher all-in-costs of production could likely offer you the biggest gains, just as we saw last week with the above five resource stocks.
