Shares in ASX gold miners such as Newcrest Mining Limited (ASX: NCM) have tumbled lower today after the spot price for the precious metal fell nearly 2% overnight.
Falling Share Prices
As at lunchtime today, Australia’s largest gold miner, Newcrest, was down 4% in reaction to the fall in the gold price overnight. A number of its peers have followed suit with Silver Lake Resources Limited (ASX: SLR) down 5%, Evolution Mining Ltd (ASX: EVN) weaker by 3% and Gold Road Resources Ltd (ASX: GOR) trading 4% lower.
A move of 2% in the spot price of gold does very little to affect the underlying performance of our listed gold miners. However, investors tend to be a very reactionary lot and as a result, the share prices of the various miners will fluctuate along with the gold price.
Taking a step back to provide some context, we can see that the gold price is up more than 35% this year in Australian dollar terms. This has predictably led to a strong surge in gold stocks on the ASX, with many enjoying their best run in several years.
The price of gold typically benefits from bad economic news and negative geopolitical events; or simply the anticipation of negative geopolitical events. In fact, uncertainty is a key driver of fear in financial markets, so the ongoing and unpredictable trade tensions is providing further fuel for the surge in the gold price.
Where To From Here For The Price Of Gold?
The honest answer is I don’t have much idea. Unfortunately, gold is one asset that is particularly hard to value, not least of all because it is an asset almost devoid of any intrinsic value.
Most investors either speculate in gold or use it as a type of quasi-insurance against a financial crash. This is because the price of gold has historically performed relatively well during bad downturns in the economy, so it is often seen as a safe haven for investors.
I’m not against investing a small percentage of one’s portfolio in gold, especially given the diversification benefits that it can bring. However, I would be cautious not to make it too large of a weighting in your portfolio given the unpredictability of the underlying asset. I think a portfolio limit of 10% is reasonable.
Which ASX Gold Miner Would I Buy?
Personally, I don’t currently own any gold shares as I prefer to buy into companies that have the capability of generating positive returns regardless of the prevailing macroeconomic environment.
However, if I were to pick one ASX gold stock, it would be Newcrest for its quality management and its industry-leading low cost of extraction.
At the time of publishing, Luke has no financial interest in any companies mentioned.