Many of the best Australian ASX gold miners such as Evolution Ltd (ASX: EVN), St Barbara Ltd (ASX: SBM), Northern Star Resources Ltd (ASX: NST) and Newcrest Mining Limited (ASX: NCM) have enjoyed a strong couple of years thanks to the falling Australian dollar and rising production levels.
However, the US dollar spot gold price hasn’t helped them much, with it actually trading flat over the past 5 years to sell for around US$1,290 a kilo this afternoon.
Many economists, speculators, and other investors have theories about what drives the gold price higher or lower including the impacts of inflation, the U.S. dollar, supply and demand, and whether capital or equity markets are generally in a ‘risk on’ or ‘risk off’ mode.
The truth is all these factors probably have an impact on the gold price, with gold being a flight to safety asset which is why when we see strong equity markets like today then gold miners tend to be sold off.
Therefore buying gold as a hedge against a market crash would make sense, but crashes tend to occur for unexpected reasons, which makes this strategy next to impossible.
Anyone keen on gold miners then should stick to the fundamental research principles of valuation, mine life, capex, cash flows, debt, etc, before undertaking an assessment of potential future moves in the gold price.
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Motley Fool contributor Tom Richardson 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.