Read this before you invest in ASX gold shares

If FOMO is driving you to invest in ASX gold shares, be sure to diversify. Here's one gold ETF that could fit the bill.

| More on:
Gold bar in front of gold price chart

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

On Wednesday I penned an article warning you not to get caught up in the gold fever sweeping through global investment markets. 

Rather than invest in historically volatile gold shares, I recommended you consider adding some healthy dividend shares to your portfolio. As a long-term investor, you'll almost certainly find better value there over time, in my opinion.

There are a good number of quality income shares listed on the All Ordinaries (INDEXASX: XAO). Many have reduced or suspended their most recent dividend payments due to the economic fallout from COVID-19. But that's a short-term issue. Once the economy regains traction, and it will, the dividends should flow again.

I specifically pointed to Collins Foods Ltd (ASX: CKF) as a yield stock you might want to look into further. In trading today, the Collins Foods share price is $9.53 per share. That's right around where it was mid-day Wednesday.

But that's fine. Unless you're day trading — in which case, I hope you have a good supply of antacids — you shouldn't get overly caught up in the daily price swings. Instead, look for quality shares with a track record of regular and growing dividend payments. And consider adding to your holdings when the share price falls for non-company specific reasons.

Some eye-popping gains fuelling FOMO

With that said, the fear of missing out (FOMO) can be a powerful driver.

When your friends are talking about the 80% gains they've made from Aussie gold miner Silver Lake Resources Limited (ASX: SLR) since the start of 2020, it's easy to take your eyes off your 20 to 30 year investment horizon and want a 'piece of the action'.

And Silver Lake isn't alone. Saracen Mineral Holdings Limited (ASX: SAR) has seen its share price rocket 78% year-to-date. And the Evolution Mining Ltd (ASX: EVN) share price is up 58%.

Ironically, the same virus that's dragging on many companies' share prices is helping fuel gold's rise, and supporting the companies that dig it up. In times of uncertainty, investors historically flock to haven assets like gold. And the insecurities thrown up by the coronavirus have seen the yellow metal reach record highs in US dollars. It's currently worth US$1965 per troy ounce at the time of writing.

Which brings me to an important point…

We don't use the greenback in Australia

Gold is right near its record highs in US dollars. But we don't get paid in US dollars here in Oz. And we can't spend them.

The US looks set for a period of inflation, while the Australian Bureau of Statistics just reported the Consumer Price Index (CPI) fell 1.9% in the June 2020 quarter. Australia's annual inflation rate fell to -0.3% (or +0.3% deflation) for the year through the end of June

This is clearly visible in the exchange rate between the 2 currencies. On 20 March, 1 Aussie dollar only fetched 57 US cents. Today it's worth 72 US cents.

You can see the same trend playing out in the gold price. Year-to-date, the gold price in US dollars is up 29.2% while in Aussie dollars it's up a more subdued 25.8%. Still a big gain, but something to keep in mind when you hear the gold price quoted.

Should you buy ASX gold shares?

If you want to take a punt on a specific gold miner, best of luck. As we saw above, some miners have returned fantastic gains so far this year. Just don't invest more than you can afford to lose.

If you're looking for exposure to a wide range of gold shares with a single investment, you may want to look into the ASX-listed VanEck Gold Miners ETF (ASX: GDX).

The VanEck Gold Miners ETF holds a basket of diversified companies involved in the gold mining sector. Management costs run 0.53% per year.

According to the company website, the fund "provides exposure to publicly traded companies worldwide involved primarily in gold mining, representing a diversified blend of small-, mid- and large-capitalisation stocks."

As at 30 June, the fund's top 3 country weightings are 54% to Canada, 18% to the US, with Australia coming in at number 3 with 15% weighting.

Year to date, the VanEck Gold Miners ETF share price has gained 38.8%.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods Limited. 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.

More on Share Market News

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »