As markets around the world start to put the Brexit behind them, I think now could be a good time to move on from the gold miners which have soared on the back of the recent market volatility.
When there’s trouble in financial markets investors flock to certain assets in what is often referred to as a “flight to safety”. The U.S. dollar, Japanese yen, and gold are perhaps the three most common safe haven assets. Historically these assets have been effective ways of preserving capital when markets crumble.
Last week they lived up to their reputation and rocketed higher in the aftermath of the Brexit vote. But as markets start to push forward they are now beginning to give back those gains. Gold is current priced at US$1,316 an ounce, down around 3% from its post-Brexit high of US$1,356 an ounce.
If gold continues to decline it could spell trouble for shareholders of some of Australia’s biggest gold miners which have catapulted higher as a result of the rapid rise in the gold price.
Some of Australia’s biggest gold miners soared as much as 15% between the Friday and Monday following the Brexit vote. This included the likes of St Barbara Ltd (ASX: SBM), Northern Star Resources Ltd (ASX: NST), Resolute Mining Limited (ASX: RSG), OceanaGold Corporation (ASX: OGC), and Newcrest Mining Limited (ASX: NCM).
It will come as no surprise to readers to learn that on a day when the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up by a huge 1.7%, the S&P/ASX All Ords Gold (Index: ^XGD) (ASX: XGD) index has dropped lower by over 2%.
Admittedly nobody quite knows what is around the corner for financial markets. Some have called the recent rally a “dead cat bounce”. A dead cat bounce is what traders refer to as a temporary recovery from a large decline, followed by a continuation of the downtrend. If this is the case and markets do start to collapse once again, then the price of gold could well start to edge higher.
But personally I would prefer to focus my attention on quality shares in the S&P/ASX 200 instead of speculating on the price of gold and Australian gold miners. Shares such as Retail Food Group Limited (ASX: RFG) and Ramsay Health Care Limited (ASX: RHC) offer great growth prospects with a much lower level of risk.
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Motley Fool contributor James Mickleboro 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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