Investors have always sought the protection of gold in cases of recessions and financial crises. Gold was already off to a strong start in 2020 following geopolitical escalations between the US and China, and the US and Iran. The coronavirus pandemic further propped up gold prices to almost record all-time highs.
This is why investors should be watching ASX gold shares instead of trying to pick 'cheap' stocks and dividend traps.
Tailwinds for gold
Safe-haven buying has been fuelled by the collapse of global equity markets in first quarter of the year. Central banks around the world have their printing machines running overtime in an attempt to cushion the economic repercussions of the coronavirus. Furthermore, interest rates were slashed by major global central banks, with the Reserve Bank of Australia cutting rates to 0.25% and the US Federal Reserve cutting interest rates to zero percent. Printing more money and raising debt should see fiat currencies get devalued.
Additionally, China's decision to curb Hong Kong's autonomy by pushing forward a controversial national security law and the likelihood of a strong US retaliation will continue to support stronger gold prices, in my opinion. As reported by the BBC, President Donald Trump has said that "this is a tragedy for Hong Kong … China has smothered Hong Kong's freedom". Rising tensions could put the US–China trade deal agreed in January at risk.
As economies around the world begin to restart economies by relaxing lockdown measures and allowing businesses to reopen, there is the risk of a 'second wave' of coronavirus infections. While global equities have rebounded and remain optimistic, a second wave could initiate another broad market sell-off.
ASX gold shares
ASX gold miners are an excellent avenue to gain gold exposure without having to directly invest in the commodity. There are a broad range of gold miners that have differing growth and cost characteristics.
Northern Star Resources Ltd (ASX: NST) and Saracen Mineral Holdings Limited (ASX: SAR), for example, have typically been more growth orientated, favouring acquisitions and the expansion of their mining capabilities. Both miners are involved in the joint venture of the KCGM, the largest open pit mine in Australia and the 2nd highest producer of gold. These significant acquisitions have generated immediate revenue and continue to provide the businesses with additional exploration and reserve upside. While I would say Northern Star and Saracen are more volatile and risky investments, their 'growth' orientated business models have seen significant capital gains for their long-term investors.
Alternatively, Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) are more cost-focused with some of the lowest all-in sustaining costs. Evolution and Newcrest are well positioned to leverage off higher gold prices given their low production costs.
