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3 things every gold investor must know today

It wasn’t just equities in party mode last year.

Supported by rising gold prices, shares in ASX-listed gold miners were also on fire. The S&P/ASX All Ordinaries Gold index (INDEX ASX: XGD) jumped 22% in 2017.

Above: ASX:XGD price chart. Source: Google Finance

However before jumping into gold mining shares in 2018, here are three things that you should be aware of today.

1. What will drive the price of gold in 2018

The gold price didn’t get much coverage during 2017, drowned out by discussion of the charge of bitcoin.

Inflation. Given the long held belief that gold is a hedge against inflation, any unexpected increases would increase demand for the metal.

The AUD:USD exchange rate. A falling Aussie dollar would generally be a big help to gold producers. Although some costs like fuel may rise slightly for local producers, the price received for each ounce of gold would also rise.

Higher US interest rates. Because physical gold does not pay interest or dividends, higher interest rates would mean a higher opportunity cost for owning gold compared to owning bonds or having cash in the bank. As the U.S. economy strengthens, the likelihood of higher interest rates also rises.

2. The world’s most expensive vodka bottle was stolen!

Wait… what?!

Yep, according to Bloomberg the world’s most expensive vodka bottle was stolen from a bar in Copenhagen, Denmark. The bottle was made of 3kg of gold, had a diamond encrusted cap, and was apparently priced around US$1.3 million.

This of course is where I remind you about the difference between price and value. Three kilos of gold (about 105.8 ounces) at current prices will set you back only US$140,000 A bottle of Smirnoff vodka from down the road will be an additional $40.

3. Evolution Mining Ltd  is probably the lowest cost producer

A quick review of the major ASX listed gold producers suggests that Evolution Mining Ltd (ASX: EVN) was probably the king of low-cost production for 2017.

The company is Australia’s second-largest gold producer and these economies of scale helped to drive All-In Sustaining Costs (AISC) to a record low of $905 per ounce for the full year 2017.

This was a fraction below the $907/oz reported by St Barbara Ltd (ASX: SBM) and about 10% below both Newcrest Mining Limited (ASX:NCM) and Northern Star Resources Ltd (ASX: NST).

If you’re considering adding gold producers to your portfolio today, I would suggest looking closely at how the company plans to sustain itself going forward – and what that may cost – before buying.

Or, if you prefer not to deal with volatile commodity risk, I would strongly consider these top ideas today.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

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Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

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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