It's been a great year for precious metals. One that's delivered a huge boost to most ASX gold shares.
On the flip side, the year dominated by lockdowns and social distancing put in place to battle COVID-19 has been less than stellar, to say the last, for the share prices of companies in the travel and hospitality industries.
The Flight Centre Travel Group Ltd (ASX: FLT) share price, as one example, is down 68% since 2 January (at the time of writing). And that's still after a 41% rebound from its 19 March low.
The coronavirus has been a big financial drag on companies like casino giant Crown Resorts Ltd (ASX: CWN), too. Crown's share price is down 20% year-to-date. And, as with Flight Centre, that loss comes despite Crown's 60% share price surge since 19 March.
Okay, those are 2 representatives of the beaten-down shares. The ones many investors are still fearful to sink their hard-earned money into.
The greedy money is still pouring into surging gold and technology shares.
Today, we'll take a look at the gold sector…
Gold's up 27% in 2020, many gold shares are up even more
The ASX gold shares have received a big boost this year from the fast-rising price of bullion.
Gold kicked off the year trading for US$1,517 per troy ounce. Today it's trading for US$1,934 (AU$2,705) per ounce, after peaking on 6 August at US$2,063 per ounce. But even after that small retracement, the yellow metal is still up over 27% since 1 January.
And gold shares, as you may have heard, are leveraged to the price of gold. That's because a miner's fixed costs don't change. So, when the price of gold rises, most of that gain goes right to the bottom line…and results in rising share prices.
Just look at Northern Star Resources Ltd (ASX: NST). The Northern Star share price is up 25%, year-to-date.
And the Saracen Mineral Holdings Limited (ASX: SAR) share price is up 64% since 2 January. That's well over double the price gains of bullion itself.
Why ASX gold shares are running higher
The gold miners owe much of the thanks for their bull run to global government policies. Ones that have seen interest rates hit record lows and pumped trillions of dollars of stimulus into world economies. Add in geopolitical tensions between the US and China and the wave of uncertainty unleashed by the coronavirus, and gold's 'safe haven' status has proven a strong draw.
And mum and dad investors look to be catching gold fever at a record pace.
From the Australian Financial Review:
Annual report disclosures that break down the composition of investors by shares held reveals a boom in those owning small parcels of 1000 shares or less. The biggest increases tend to be linked to gold, where the commodity price hit a record this month, and tech stocks.
"This happens in every cycle. Retail investors tend to gravitate towards the stocks doing well and the stocks that are being talked about a lot," said Chris Brycki, founder and chief executive of online investment adviser Stockspot.
The annual report disclosures revealed that small positions in Saracen have risen from 26.6% in the 2019 financial year to 37.2% for 2020. Retail investor interest in Northern Star has increased even more, up 50%.
Gold shares should continue to perform well, as long as the price of the yellow metal itself remains high.
At the moment, soaring demand via physical-gold backed exchange-traded funds (ETFs) is helping drive the market higher. And this comes at a time when new gold supplies have been hindered due to impacts from the coronavirus.
According to Bloomberg, ETFs "now hold more gold than every central bank with the exception of the Federal Reserve".
"At these times, it's a very good business to be in," said George Milling-Stanley, chief gold strategist at State Street Global Advisors, the marketing agent for the largest gold ETF, SPDR Gold Shares or GLD. "There's no question in my mind that ETF demand is driving gold right now."
With demand for physical gold booming and gold miners frequently dominating the financial headlines, you can see why so many retail investors are still gravitating towards ASX gold shares.
Those may still have some big gains ahead of them. But it does bring the advice of legendary investor Warren Buffett to mind.
Keep your goals modest
You've probably heard some snippet or other of Buffett's famous fear and greed quote. Here's the full excerpt, from a letter he wrote to Berkshire Hathaway shareholders in 1986.
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
If the Oracle of Omaha – who recently invested in Barrick Gold Corp (NYSE: GOLD) – won't speculate on the duration or degree of the current gold fever, I certainly won't put my neck out there.
But in the gold space today greed is certainly dominating. And with so much gold held by ETFs, which are liable to rapid reversals, I wouldn't put too many eggs in today's shiny basket.
