Renewed concerns regarding the health and outlook for the global economy have hit the markets again, resulting in a sharp fall in equity prices overnight. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has followed on, dropping 1.1% early in today's session.
Amid all the gloom however, there is one corner of the market that is performing quite strongly, and there are no prizes for correct guesses as to which corner that may be.
As is often the case during times of elevated uncertainty and fear, investors around the world can tend to turn to the 'safety' of gold. Shares in the United States suffered one of their hardest falls in six weeks overnight over concerns that the policies adopted by central banks around the world have failed to revitalise the economy, according to The Sydney Morning Herald.
This was perhaps exacerbated by reports that the US Federal Reserve is 'unlikely' to increase interest rates again in April, preferring to take a more cautious approach to monetary policy.
I will note that this is somewhat ironic. Just last month, shares rallied when the Federal Reserve indicated its cautious approach, providing scope for lower interest rates for longer. The market's mood swings might seem unreasonable, and they often are, but that's just the way that the market can behave sometimes.
Nonetheless, investors still took these reports as a sign of trouble, and turned to gold as a 'safer' alternative. The shiny metal is now fetching US$1,236 an ounce, and may continue to rise if the levels of fear do take hold.
This has delivered a positive impact on the numerous gold miners on the ASX today as well, which are generating stronger gains than any other section of the market. EVOLUTION FPO (ASX: EVN) is the best performer, lifting 8.3% to $1.70 a share, while St Barbara Ltd (ASX: SBM), the story-stock of 2015, has rallied 5.4%.
Meanwhile, Regis Resources Limited (ASX: RRL), industry behemoth Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) have all gained between 2% and 4%.
One quick look at the chart below shows that all five of these companies have destroyed the broader market's returns since the beginning of the year. The difference is even more staggering when you zoom out to a 12-month period.
On this basis, many investors would likely be tempted to buy into the sector in the hope of more returns.
This strategy could work, especially if gold prices do continue to rally. The potential returns would likely be even greater if (or when) the Australian dollar eventually falls against the US greenback again.
In saying that, however, it's also a somewhat risky strategy. As is usually the case in the resources industry, the gold miners themselves rely heavily on the price of gold, yet have little if any control over the price.
When the volatility and uncertainty surrounding global markets do subside, so too could the price of gold which would likely have an adverse impact on these five businesses. As I said, there could be further gains in these shares, but there are certainly risks that investors need to consider as well.
