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Investors are buying ASX gold shares, but are they safe?

As the S&P/ASX 200 Index (ASX: XJO) is crashing lower today, ASX gold shares are surging. Saracen Mineral Holdings Limited (ASX: SAR) and St Barbara Ltd (ASX: SBM) shares are two of the biggest gainers today, both up more than 11% at the time of writing. But while investors are flocking to buy, are these ASX gold shares really that safe?

Why ASX gold shares could be a good strategy

Gold has always been seen as a safe haven asset of sorts. It has been around as a store of value for the longest time. The precious metal holds a special place in investors’ hearts when times get tough.

Well, we’re seeing COVID-19 make times pretty tough right now. The situation is unravelling very quickly, not just in Australia but across the globe. No one knows just what the extent of COVID-19 impacts will be at this stage. If there’s one thing that share markets don’t like, it’s uncertainty.

However, ASX gold shares haven’t been immune from investor panic selling either. St Barbara shares are down 20% in the last month as an example. But investors believe that because gold prices are strong from extra demand, these ASX gold miners will continue to deliver strong earnings. That could make buying ASX gold shares a good strategy until this COVID-19 induced storm passes.

But there are still risks attached…

I wouldn’t consider ASX gold shares to be the magic ticket to weathering this volatility. While it is true that the Aussie gold miners might hold up better than some, there are still individual company risks involved. One case of COVID-19 at a mine site could shut down operations for who knows how long. Similarly, any supply agreements could be up in the air, and no one knows.

I’m a firm believer that diversification and strategic asset allocation is a long-term driver of returns. If you can buy good ASX shares, whether they’re gold mining companies or not, that is really the key.

Most importantly, stay calm, make sure you’ve got your personal finances in order and then invest your extra cash in some cheap ASX 200 shares.

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Motley Fool contributor Ken Hall 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.