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S&P/ASX 200 Index sinks: Is it time to buy gold?

The S&P/ASX 200 Index (INDEXASX: XJO) fell 0.6% on Wednesday as investors began to factor in the possibility that interest rates in the USA will rise earlier than previously expected which will have a major effect on the valuation of all asset classes including equities. The sinking iron ore price and plunging Australian dollar also added to investor caution.

There were only two sectors within the S&P/ASX 200 which ended the day higher – the information technology sector and gold. In fact, amongst the ten biggest gainers within the index, five were gold miners. At the close of trade, Medusa Mining Limited (ASX: MML), Resolute Mining Limited (ASX: RSG), Northern Star Resources Ltd (ASX: NST), Newcrest Mining Limited (ASX: NCM) and OZ Minerals Limited (ASX: OZL) had each gained 6.3%, 2.9%, 1.4%, 1.2% and 1.2% respectively.

While few market commentators see an end to the bull market occurring anytime soon, there is always the potential for increased near term volatility. Should volatility increase then the safe haven status of gold is likely to shine again.

Cheap in its own right

Many gold stocks have fallen significantly in the past 12 months which could have created value buying opportunities. For example, Newcrest which is one of the world’s largest gold producers, has seen its share price down 17%. The potential tailwind of market volatility could be a positive catalyst for a re-rating of some fundamentally undervalued gold stocks which would make it worth investors doing some exploration of their own!

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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