Is it time for Australian investors to switch to gold?

Credit: Szaaman

Last week continued an impressive theme of gold stocks heavily outperforming the rest of the market. Like during the iron ore boom of the late 2000s and early 2010s, the momentum behind the rush to gold (coupled with a lower Australian dollar) has made more than a few Australians significantly richer this year.

Amazing Performance

Since the start of the calendar year, the Australian-dollar denominated gold price has increased an astounding 20.2%, compared to just a 0.2% positive return for the S&P/ASX 200.

The reason? The world is currently a difficult to predict place. When times get tough or confusing many of the large players in the world, namely governments and hedge funds, retreat away from riskier stocks to assets like gold that are recognised as a store of wealth.

To highlight the uncertainty facing investors at the moment, here is a short list of the risks on the table at the moment:

  • Brexit
  • US Elections
  • Europe’s ongoing debt & economic growth problems
  • Chinese hard landing
  • Terrorism
  • US interest rate rises

Australian Options

All of these factors have conspired to push demand for gold up as investors opt for an investment that returns a 0% income yield versus leaving the money in governments debt where that same deposit has a very low or even negative return.

Here are the six hottest gold stocks on the ASX right now:

St Barbara Ltd (ASX: SBM) – up 23% last week and 127% this year

Independence Group NL (ASX: IGO) – up 21% last week and 29% this year

Saracen Mineral Holdings Limited (ASX: SAR) – up 20% last week and 125% this year

EVOLUTION FPO (ASX: EVN) – up 16% last week and 68% this year

Newcrest Mining Limited (ASX: NCM) – up 13% last week and 72% this year

Northern Star Resources Ltd (ASX: NST) – up 12% last week and 71% this year

Is it too late for everyday investors to switch to gold?

Call me crazy, but with the numbers above, I think it’s too late to jump into gold stocks. Of course, the major risk to that theory is that any of the six issues above has a big impact and results in a huge flight to safety for money all over the globe. If this does happen, however, I believe equity markets as a whole will retreat (even gold stocks) so placing all your eggs in the gold basket could be risky too.

My strategy right now, as it always is, is to find quality companies at good prices.

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Motley Fool contributor Andrew Mudie has no position in any stocks mentioned.  You can find Andrew on Twitter @andrewmudie

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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