Shares in the big gold miners soared on the ASX today as investors bet gold prices may catch an updraft in 2016 thanks to a combination of factors weighing on confidence over the global growth outlook.
Shaking investor confidence is another crash in China's flagship CSI300 Index to follow more worrying economic data out of China that suggests the global economy's growth powerhouse is slowing down faster than expected.
One metal that may be a beneficiary of China's potential meltdown is gold, which has actually crashed in value from around US$1,900 to US$1,095 an ounce since the peak of the European debt crisis in August 2011.
The gold price crash has also taken miners like Newcrest Mining Limited (ASX: NCM) down with it from above $40 per share in 2011 to $13.20 today.
Broadly speaking gold moves inversely to global confidence in the macro-economic outlook, with fear an especially potent tonic for gold prices that have been in a slumber for more than a year.
However, Brazil and Canada both tipped into recession in 2015 on the back of falling commodity prices and more evidence that China's growth momentum is fading could send markets into a spin and gold far higher in 2016.
How high gold could go depends on the big unknown that is China and its domino like effect on the indebted emerging market economies, while Europe and its debt-fuelled political problems are another potential trigger point, among other things, in 2016.
Moreover, as Chinese shares crash more than 7% again today to hit Beijing's stop loss limits, gold miners are already rising in response.
• Northern Star Resources Ltd (ASX: NST) is up 3.3%,
• EVOLUTION FPO (ASX: EVN) is up 2.6%,
• Silver Lake Resources Limited. (ASX: SLR) is up 6.3%
• Newcrest Mining Limited (ASX: NCM) is up 1.15%
• St Barbara Ltd (ASX: SBM) is up 2.6%.
Investors should take a long-term approach to investing, although those especially bearish on the outlook for 2016 may still see plenty of value in the above gold-focused businesses.
