Be wary investors, because all that glitters is…gold, today.
Gold stocks on the S&P/ASX 200 (INDEXASX:XJO) index have proved very popular with a number of companies rising 3% and more on the back of a 1.6% increase in the value of gold overnight.
The precious metal now changes hands for US$1,151 per ounce, or roughly AU$1,576, reflecting decent profits for Newcrest Mining Limited (ASX: NCM), Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVN), who all have production costs below AU$1,000 per ounce.
Uncertainty among investors regarding the outlook for Greece and China is likely fuelling the recent strength in gold prices. A Greek election creates continued uncertainty for that country's currency and the weakness in China's stock market and currency could be renewing appetite for hedges, like gold.
Smaller stocks like Beadell Resources Ltd (ASX: BDR), Regis Resources Limited (ASX: RRL) and Saracen Mineral Holdings Limited (ASX: SAR) have also experienced a frenzy of buying, rising 13%, 10% and 5% respectively.
Unfortunately as I warned investors two months ago, buying gold as a hedge rather than because it's a compelling investment is a sure-fire way to ruin your investing returns.
Macroeconomic conditions are making it look more likely that the overall trend for gold could be down, not up in the next few years. Some pundits have even predicted that gold could head as low as $800 an ounce.
Furthermore, the metal's value as a hedge is limited and the risk of market underperformance is enormous – the ASX has risen 1,100% in the past 30 years, compared to gold which is up around 250% – and gold doesn't pay any dividends.
