Is it time to buy ASX gold shares?

Is it time to buy gold, since the gold price has pulled back substantially from its highs? I think there is a case for the yellow metal today

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Old chest filled with gold coins

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Gold has been an interesting space to watch this year. We have seen the gold price break it’s 9-year all-time high, and subsequently watched it go above US$2,000 an ounce for the first time in history. We’ve also seen it retreat considerably, falling more than 8% since early August to today’s price of US$1,877 an ounce. Even so, gold remains more than 23% higher than it was at the start of the year, considerably outperforming both the S&P/ASX 200 Index (ASX: XJO) and the popular US share market benchmark, the S&P 500.

This movement in the gold price has been reflected in the ASX 200’s gold mining companies. Newcrest Mining Limited (ASX: NCM), the ASX’s largest gold miner, is down another 1.04% today to $29.12 after falling nearly 20% since early August. It’s a similar story with other ASX gold miners like Evolution Mining Limited (ASX: EVN) and Northern Star Resources Limited (ASX: NST). Likewise with the ETFS Physical Gold ETF (ASX: GOLD), which is also down around 8% since early August.

So we are unquestionably seeing a pullback in gold and gold-backed companies and funds. Since the golden rule (or one of them) in investing is ‘buy low, sell high’, perhaps we should be taking notice. So is this the time to buy gold, ASX gold miners, or gold investments?

Is it time to go gold panning on the ASX?

Gold is not an investment class for everyone. Many investors, including the famous Warren Buffett, have called gold a poor investment in the past, with good reason. There have been decades at a time in the past where gold has gone either nowhere or backward. At the end of the day, it is an ‘unproductive asset’, which actually costs you money to hold, in contrast with an ASX dividend share, which pays you to hold it.

However, I think this might actually be a compelling time to buy gold if it holds a certain lustre with you. Gold is an asset that typically acts as a ‘safe haven’ in times of economic stress. That’s why we have seen gold appreciate so enthusiastically in 2020 for obvious reasons. Equally, the retreat of gold over the past few months has coincided with rising share markets, across both Australia and the USA.

However, let’s look at the future. Straight up, we have a highly contentious US presidential election coming up in under a week. If the result of the election is disputed, or not immediately obvious, we could well see massive volatility in the markets. Gold will probably shine if that comes to pass. But looking beyond that, we have governments around the world, including the USA, in unprecedented levels of debt. Many commentators, including the influential Ray Dalio, predict this could lead to massive currency devaluation in the future as those countries struggle to bear that debt burden. Gold would also be an outperforming asset in that environment, due to its scarcity compared with ‘printed money’ from quantitative easing programs.

Foolish takeaway

Overall, I think today is a good opportunity to buy gold if it’s qualities appeal to your investing style. It’s certainly not an asset for everyone, but we are in unprecedented times.

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Motley Fool contributor Sebastian Bowen owns shares of Newcrest Mining Limited. 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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