Last week continued an impressive theme of gold stocks heavily outperforming the rest of the market. Like during the iron ore boom of the late 2000s and early 2010s, the momentum behind the rush to gold (coupled with a lower Australian dollar) has made more than a few Australians significantly richer this year.
Amazing Performance
Since the start of the calendar year, the Australian-dollar denominated gold price has increased an astounding 20.2%, compared to just a 0.2% positive return for the S&P/ASX 200.
The reason? The world is currently a difficult to predict place. When times get tough or confusing many of the large players in the world, namely governments and hedge funds, retreat away from riskier stocks to assets like gold that are recognised as a store of wealth.
To highlight the uncertainty facing investors at the moment, here is a short list of the risks on the table at the moment:
- Brexit
- US Elections
- Europe's ongoing debt & economic growth problems
- Chinese hard landing
- Terrorism
- US interest rate rises
Australian Options
All of these factors have conspired to push demand for gold up as investors opt for an investment that returns a 0% income yield versus leaving the money in governments debt where that same deposit has a very low or even negative return.
Here are the six hottest gold stocks on the ASX right now:
St Barbara Ltd (ASX: SBM) – up 23% last week and 127% this year
Independence Group NL (ASX: IGO) – up 21% last week and 29% this year
Saracen Mineral Holdings Limited (ASX: SAR) – up 20% last week and 125% this year
EVOLUTION FPO (ASX: EVN) – up 16% last week and 68% this year
Newcrest Mining Limited (ASX: NCM) – up 13% last week and 72% this year
Northern Star Resources Ltd (ASX: NST) – up 12% last week and 71% this year
Is it too late for everyday investors to switch to gold?
Call me crazy, but with the numbers above, I think it's too late to jump into gold stocks. Of course, the major risk to that theory is that any of the six issues above has a big impact and results in a huge flight to safety for money all over the globe. If this does happen, however, I believe equity markets as a whole will retreat (even gold stocks) so placing all your eggs in the gold basket could be risky too.
My strategy right now, as it always is, is to find quality companies at good prices.
