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Why ASX gold miners can continue to head higher  

Credit: Szaaman

The main argument against gold as an investment is that it yields no interest or dividends while you are holding it. With interest rates at record lows, now may just be the time to revisit gold as an investment proposition.

Historically gold has been seen as a safe haven in times of uncertainty. After falling in price from its GFC highs, the gold price has again started to turn higher in 2016. My belief is that the market has turned bullish on gold because of weaker-than-expected employment, GDP, and company profit figures in the US. The same weak figures which have led to America’s Federal Reserve Bank to delay any interest rate rises until later in 2016.

gold 5

Source: http://goldprice.org/gold-price-australia.html

This alone would be good news for Australian gold producers but they were given an extra boost last week when Australia’s Reserve Bank cut official interest rates, sending the Australia dollar lower and pushing the gold price in Australian dollars back towards levels not seen since the GFC.

gold

Source http://goldprice.org/gold-price-australia.html

With Australia’s inflation low and GDP growth sluggish at best, it is likely that the RBA will cut rates again, the dollar will fall lower and gold will continue to rise in Australian dollar terms.

Over the last month alone, EVOLUTION FPO (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) have risen in price by a staggering 50% and 25% respectively. If the RBA cuts rates again as predicted by many economists, this trend is likely to continue.

Foolish takeaway 

Any investment in the resource sector can never be considered a sure thing with relentless fluctuations in commodity prices. When deciding which gold miner to invest in, there are three key points you need to consider.

Firstly the amount of proven gold reserves the company has (note proven not inferred), obviously the more the better.

Secondly, the cost of getting the gold out of the ground, known as AISC (All in sustaining cost), here the lower the number the better. This also indicates how easily the gold is mined.

The third key point is the production figures, ie. The actual amount of gold that is being mined each quarter.

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Motley Fool contributor Alan Edmunds 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.

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