Should you buy gold stocks before the market crash?

Donald Trump signed a memo tasking officials with making a list of Chinese-produced goods to put tariffs on. The tariffs could be worth up to US$60 billion.

The theft of intellectual property is a terrible thing, but I don’t think this is the way to fix it. If China responds with its own tariffs then the world economy could be on a slippery slope, it’s the type of thing that could cause the next recession.

This will undoubtedly cause a few volatile days on the stock market, I expect some global-facing businesses like BHP Billiton Limited (ASX: BHP) will suffer a large fall today.

So, how do we combat this danger to our portfolios?

It is very common that whenever volatility increases, gold stocks suddenly get a boost. Therefore, does it make sense to buy gold stocks to ride out this wave?

If you’ve held gold stocks for a while then you’re in luck. Resolute Mining Limited (ASX: RSG) was trading at $0.25 at the start of 2016 and now it’s at $1.23. St Barbara Ltd (ASX: SBM) was trading at $0.08 in December 2014 and now it’s at $4.13. These are impressive gains.

The only true way to profit from gold stocks is to own them before the bad news hits. That could mean holding for many months, or even years, hoping for some bad news to come along. That would be a very pessimistic life!

Foolish takeaway

The gold miners themselves are not ‘high quality’ businesses compared to some other options on the ASX. I believe the best strategy is to invest money into great stocks which are hit in times like this. Getting a good purchase price for quality businesses is the best way to generate exceptional long-term returns.

That’s why I’m watching these top stocks to invest at beaten-down prices.

Top 3 ASX Blue Chips To Buy In 2018

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Motley Fool contributor Tristan Harrison has no position in any of the 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 Scott Phillips.

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