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Are ASX gold miners a good long-term investment?

If you have been paying any attention to the movers and shakers on the ASX in 2019 so far, you would have noticed the phenomenal gains that gold mining stocks have made this year.

For example, the ASX’s largest gold miner Newcrest Mining Limited (ASX: NCM) has gone from $21.71 at the start of the year to the $34.81 price tag we see today – a YTD price gain of 60.34%.

Other gold miners have had similar experiences – Evolution Mining Ltd (ASX: EVN) is up 36.8% for the year and Gold Road Resources Ltd (ASX: GOR) is up a stunning 125%.

Why have gold miners hit the roof this year?

The massive interest in gold miners in 2019 so far has been driven by two factors. The first has been the price of gold. Gold in US dollar terms has climbed from about US$1,285 per ounce at the start of the year to recently hitting over $1,500/oz earlier this month. This is the highest level gold prices have been (in US dollar terms) since 2013.

But if we look at gold in Australian dollars, the picture is a lot rosier for gold miners. Due to our weaker dollar, gold prices in Australian dollars have never been as high as the levels we have seen in 2019. In Aussie dollars, an ounce of gold will set you back over $2,205 – an unprecedented high.

The second factor (and this relates strongly to the first) is the skittishness of global markets. A record-long bull run has seen more than a decade of both economic and stock market growth in the US, and investors are very scared that we are overdue for a correction. Throw in the escalating US–China trade war and Brexit tensions and we have a lot of investors who are partial to the ‘safe-haven’ aura that gold gives off.

So, are gold miners a good long-term investment? 

Although we have seen huge share price rises for gold miners, I think that these companies are only a good investment if the gold price continues on this trajectory, which it eventually won’t – gold (like all commodities) is a cyclical asset. Gold miners don’t pay consistent or substantial dividends (Newcrest is currently yielding a 0.73% dividend) and so I don’t believe gold miners are a good long-term investment. Just ask anyone who bought Newcrest shares for more than $40 in 2010 (spoiler: they are still underwater).

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Motley Fool contributor Sebastian Bowen 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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