Should you be buying or selling gold miners? People dived into gold during fears of a Trump presidency, and now that we?re here, investors are still uncertain due to all the geopolitical tensions that have been cropping up recently.
Frankly I haven?t got a clue where the price of gold is headed next. It will depend on supply and demand, as well as some other factors like the value of the Australian dollar against the US one. One thing I do know for certain is that I?m not buying Newcrest Mining Limited (ASX: NCM), Australia?s largest gold miner. Here?s why:
To keep reading, enter your email address or login below.
Should you be buying or selling gold miners? People dived into gold during fears of a Trump presidency, and now that we’re here, investors are still uncertain due to all the geopolitical tensions that have been cropping up recently.
Frankly I haven’t got a clue where the price of gold is headed next. It will depend on supply and demand, as well as some other factors like the value of the Australian dollar against the US one. One thing I do know for certain is that I’m not buying Newcrest Mining Limited (ASX: NCM), Australia’s largest gold miner. Here’s why:
It is expensive
As I wrote in my half year coverage of the company’s results, Newcrest looks pretty expensive at an estimated 35 times its full year earnings. This is for a company that grew production by 2% during the first half and saw its costs remain flat.
Not only is there no margin of safety to allow for changes in things outside the company’s control (i.e., the price of gold), but investors appear to be paying well above a fair price for their business.
It has no control over the end price of its products
Supply and demand will affect the overall price of gold, as will the value of the Australian Dollar. Since Newcrest reports in US Dollars, its earnings become more valuable in our currency. However, investors have no way of predicting where the prices of gold or currency are headed next.
Gold will become less attractive as global interest rates rise
Often seen as a ‘safe’ asset to hedge against inflation and risk, gold will globally become less attractive as interest rates rise, especially the US Dollar. Investors like to own gold miners because they are seen as a proxy for gold, despite coming with all sorts of other company-specific risks such as debt.
The trouble is that the apparent virtues of gold become a whole lot less apparent as interest rates climb up from zero across the world. If you want an investment to sit there and do nothing, you can instead buy government bonds or even inflation-linked bonds from a government with a triple-A credit rating – like Australia. I think that there are better alternatives to both gold and Newcrest Mining available today.
Here are 3 of them:
For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..
But knowing which blue chips to buy, and when, can be fraught with danger.
The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."
Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.
If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.
The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.
The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.
Click here to claim your free report.
Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.