Well, it’s been proved yet again that global tensions are bad for the share market and good for the gold price (and the ASX companies that mine it).
As Iran launches counter-attacks against US positions in the Middle East in response to the killing of Iranian General Qassem Soleimani, the S&P/ASX 200 (INDEXASX: XJO) as well as the major US indices have experienced losses.
Going the other way are the prices of oil and gold.
Iran is a major producer of crude oil and is also situated next to the Gulf of Hormuz – a narrow body of water that accommodates the passage of a large proportion of the global oil supply. Naturally, tensions in this region place upward pressure on oil prices.
What’s been more remarkable is how the gold price has been responding.
Just a month ago, gold was going for around US$1,460 per ounce. Yesterday, the gold price hit US$1,600 an ounce for the first time since March 2013. That’s a 9.6% gain in just 4 weeks.
ASX gold miners have been doing even better. Our largest ASX gold miner Newcrest Mining Ltd (ASX: NCM) was trading for around $28 a month ago. At the time of writing, NCM shares are swapping hands for $32 (a monthly gain of 14%).
Why is gold rocketing?
Gold has always been viewed as a ‘safe haven’ asset by investors due to its tangibility, scarcity, value and its historical use as a currency base.
Investors know this and so events like this US–Iran crisis tend to create a feedback loop of sorts, as investors buy gold purely in the knowledge that others will also be doing so. Until the crisis calms (which will hopefully happen soon), it’s likely a lot of people will see gold as a better place have their money than the stock market.
Is now the time to invest in gold?
Well, that’s ultimately up to you, but I myself won’t be bothering. The ideal time to buy assets (gold and anything else really) in my view is when no one else wants them – not when everyone is scrambling to get a hold of them!
If you’ve ever heard the phrase ‘buy low, sell high’, that’s what I’m talking about! Buying gold at the current levels would seem more like ‘buying high’ than ‘buying low’ and so it’s not an approach that I’m personally following.
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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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