Unless you’ve been living under a nugget for most of 2019, you might have heard that one of the thematic trends of the year so far has been the substantial appreciation of the price of a certain metal of the yellow variety.
Yes, gold started the year out at around US $1,285 an ounce (gold, like most commodities, is always bought and sold in both US dollars and old fashioned units of measurement), but an ounce will today set you back around US $1,510, which means gold has appreciated about 17.5% since the start of the year. For us Aussies, it’s even better – an ounce of gold in our local currency would have cost us around $1,835 at the turn of the year, but today would gouge your wallet of about $2,230. Our dollar falling against the greenback means that gold is more intrinsically expensive, notwithstanding what’s happening to the actual gold price. Thus, because our dollar has spent most of the year falling against the US dollar, gold has been rising on that front too, giving Aussie gold owners a year-to-date return of 21.5%. That’s right, Aussie goldbugs have beaten our own ASX share market for YTD returns!
What about gold miners?
The beautiful thing about goldminers is that a rising gold price can deliver exponential profit increases. If it costs a goldminer like Newcrest Mining Ltd (ASX: NCM) $1,000 to dig an ounce out of the ground, and that ounce sells for $1,200 – Newcrest bags a $200 profit. But say the gold price rises 17% to $1,400 – Newcrest’s profits just went up 100% on a profit margin of $400 an ounce.
For this reason, we can see why
- Newcrest shares are up 65% year to date – from $21.71 to $35.89
- Evolution Mining Ltd (ASX: EVN) is up 27% YTD – from $3.64 to $4.62
- Northern Star Resources Ltd (ASX: NST) is up 21.4% YTD – from $9.24 to $11.21
- Saracen Mineral Holdings Limited (ASX: SAR) shares are up 22% YTD – from $2.91 to $3.56
Is it too late to buy?
Well, there’s only one way to find out, and that’s unfortunately with hindsight. Whether or not these ASX goldminers will continue to shoot the lights out pretty much comes down to whether the gold price rises any higher this year – and on that question, I’m afraid I have no answer. I always think the best time to buy commodity stocks is when the said commodity is at historically low levels, and now is not that time. So I wouldn’t be jumping on this ship myself, but to each their own!
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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.