Historically, gold has generally risen during risk-off periods when investors rebalance their portfolios away from assets like equities, perceiving turbulent times ahead. However, over the last few months both gold and equities have risen together.

So, what's driving the gold price higher?

As I see it, here are the key factors currently driving up the gold price:

Hedging inflation risk

Historically, gold has been an important hedge against inflation risk. It has held its value very well during periods of high inflation. But you might wonder where the inflation risk is today, considering central banks globally are struggling to raise inflation to their target levels.

However, I believe, there are enough investors in the market who think that there is a good chance that inflation might resemble the genie in the bottle – currently, central banks are working hard to wake the genie (inflation). But once it emerges, it might be extremely difficult to put it back in the bottle.

This same view is likely driving up the price of the cryptocurrencies like Bitcoin, which rose more than 20% during the last 2 weeks. The key investment driver for both gold and Bitcoin is that their supply is limited and grows at a much slower pace than fiat currency issued by central banks.

Chinese demand picking up

China is the largest consumer of gold in the world, having overtaken India over the last few years. And as the Chinese economy rebounds from the impact of COVID-19, its economic growth is driving up the demand for gold. With India also loosening its COVID-19 lockdown measures, the global demand for gold might increase further. For instance, as Chinese economy opened up during the second quarter of 2020, the investment demand for gold during that period almost doubled to 583 tonnes compared to the corresponding period in 2019.

While there is a strong likelihood that global demand will rise further, the supply side is not likely to keep pace with the growth in demand because of COVID-19 restrictions on mining businesses, especially in countries which are among the largest producers of gold. This is likely to drive the price of gold higher still from current levels.

Global liquidity

As a rising tide lifts all boats, the liquidity that central banks are infusing in global economy is raising the prices of all kinds of assets including gold. And with central banks expected to keep the liquidity tap open till at least the end of 2021, we are looking at a continuing supply of liquidity supporting the gold price.

Gold as an institutional investment alternative

For a long time, investment wisdom argued that gold is not an investment alternative because it does not generate income like equities do through dividends (present and future), or bonds through their interest payments, or even property through rental income.

However, currently about US$16 trillion of debt is priced at negative yield. A negative yield means that instead of a bond investor receiving interest income on his investment, he or she is in fact, paying money over and above the principal value of the bond. Imagine investing $100 to receive $98 a few years down the line!

With that as a backdrop, gold not generating any income suddenly does not sound so bad. In fact, global central banks had been net buyers of gold since the global financial crisis till COVID-19 struck this year. Taking the cue from the central banks regarding the need for diversification away from US dollar-denominated assets, even if there is a minor shift in the institutional asset allocation towards gold, we might see a further rise in gold price.

How can you benefit from the rising gold price?

One way that retail investors can benefit from the gold price rise is by investing in gold exchange-traded funds (ETFs) like ETFS Physical Gold ETF (ASX: GOLD).

However, for investors with a slightly higher risk appetite, investing in ASX gold mining companies could be an excellent option. As the gold price rises, mining companies generally see their profits grow even faster, because while they can now command a higher price for the yellow metal, their costs to mine the gold itself remain the same.

There are a number of gold mining shares listed on the S&P/ASX 200 Index (ASX: XJO) that could provide the opportunity for investors to benefit from the rising gold price. These include Newcrest Mining Limited (ASX: NCM), Gold Road Resources Ltd (ASX: GOR), Saracen Mineral Holdings Limited (ASX: SAR), Northern Star Resources Ltd (ASX: NST), Evolution Mining Limited (ASX: EVN).

The post Gold price tops US$2,000: What's driving it higher and how can you benefit? appeared first on The Motley Fool Australia.

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Motley Fool contributor Arpan Ranka 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.

This divergence between economic backdrop and the state of the market has had many people thinking that the market rise is not backed by fundamentals, and that a market crash might be round the corner again.

If the above thought, or a variation of it, has crossed your mind, then I have an old adage to share with you: It is not timing the market but time in the market that is important.

Trying to catch the top or the bottom of a volatile market is is what is being referred to here as 'timing the market'. In my opinion, more money is likely lost in markets trying to catch absolute bottoms and tops than any other activity.

On the flip side, investing with a long-term horizon and patiently waiting through such volatile periods is what's known as 'time in the market', and this is what generates wealth over time.

Can markets be 'timed'?

Let's ask some simple questions to help us answer this.

Can Mount Everest be climbed? Yes, and some people have indeed climbed it. 

Can you climb it? Potentially, but it would require some serious training and willpower to do so. 

Do training and willpower guarantee that you will reach the summit?'  Sadly, no. As mountaineers who have attempted the climb would say, 'you do not climb Mount Everest, it lets you climb it'. Even with the best training under your belt, there is no guarantee that you will reach the summit. In fact, some of the best mountain climbers have died attempting Mount Everest, despite being at the top of their game.

In my opinion, you can think of timing the market as similar to climbing Mount Everest. It can be done, and some people indeed do manage to pull it off, but the activity is highly hazardous, and the odds are stacked heavily against us.

Thankfully, there are other ways to be successful when investing in the share market.

Time in the market

As investors, one of the biggest edges you have is your time horizon. When you buy shares with the aim of being invested for multiple years or even decades, the short-term noise of the ever-churning stock market matters much less.

As an ex-fund manager, I can tell you that most fund managers running large investment funds do not have this edge, because of the short-term performance pressures they face. And it is an edge they would give a lot to have.

A sound way to approach investing in equity markets is to select a few solid companies that you know about, make regular investments in them over time and then wait for market to do the work for you. Warren Buffett said this best: "The stock market is designed to transfer money from the active to the patient." So, be patient and invest both money and time in the market.

So then when do I sell?

I believe that the act of selling shares is more complex and difficult than that of buying. When it comes to buying, your end objective is simple and straightforward – to generate wealth over time from surplus cash.

But your objectives for selling could be many. Perhaps you need to sell for emergency funds, or the termination of financial planning goals like paying for your children's college. Perhaps a company's performance isn't turning out as expected, or individual stock investments have reached their market potential, or perhaps you've simply come across a better investment opportunity. And then there is the whole psychological aspect of selling, which deserves a full article dedicated to it some other day.

The key takeaway here is that being patient – or investing 'time in the market' – does not mean that you never look to sell. It means that you wait for the right reasons to sell, and not just because you're trying to time the market and get out before a crash.

The post Timing the market versus time in the market appeared first on The Motley Fool Australia.

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Motley Fool contributor Arpan Ranka 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.

With a resurgence in infection numbers in locations like Beijing and the United States (US), talk of a second wave has intensified and spooked equity markets. This comes at a time when the World Health Organization has stated that the first wave is yet to peak in certain regions like South America. So, it increasingly looks like that, until a vaccine comes out, the world will have to live with the active infections for longer than anticipated. The great influenza of 1917 that started in the US saw multiple waves – many health professionals and historians believe that COVID-19 could also unfold in a similar pattern.

For investors like us, this means share markets will likely rise and fall in line with the COVID-19 waves. Smart investors should be looking for resilient shares that can outperform the broader market – even during times of global uncertainty. In my opinion, one such share is Woolworths Group Ltd (ASX: WOW).

How has Woolworths performed recently?

Over the last year, Woolworths shares have generated a return of 9.10% while the S&P/ASX 200 Index (ASX: XJO) has seen a negative return of 11.50%. An outperformance of more than 20% in a year during turbulent times like this can add a lot of resilience to your ASX investment portfolio. And considering its industry and business model, Woolworths shares have the potential to continue to outperform, in my view.

Even as other industries suffer because of a slowdown in the economy and lower disposable incomes, Woolworths should continue to see largely stable revenues as much of its operations are in sectors that cater to consumers' daily necessities. It is largely discretionary items like holidays that suffer the most when disposable incomes decline. Woolworths does have exposure to this segment through its hotels business, but overall its other consumer retail sectors should keep the ship stable and sailing ahead.

This optimism is also reflected in the company's plans to invest in supply chain transformation. On 23 June, Woolworths announced it will be developing an automated regional distribution centre and a semi-automated national distribution centre at Moorebank Logistics Park in Sydney. The company expects construction to be completed by the end of 2023, and expects to realise initial benefits from the new distribution centres in financial year 2025.

The 2 sites are expected to materially increase Woolworths' supply chain capacity and improve its efficiency. The company plans to invest around $700–$780 million in setting up these facilities – an investment it expects will result in a significant reduction in its supply chain costs over time.

During the first half of FY2020, Woolworths' Australian food business saw a growth of 6.4% over the corresponding period last year. Its New Zealand food business growth stood at 4.8% for the same period, while its BIG W and Endeavour drinks business grew by 2.8% and 4.7%, respectively.

When most companies are showing sharp declines in absolute revenue numbers during the same period, it's pleasing to see that Woolworths has delivered positive growth numbers. However, given the steady demand for its products, there could be a potential concern around how fast Woolworths can replenish its inventory, in the light of global supply chain disruptions. This is something to watch out for in the near future.

In its most recent trading update, Woolworths also reported that hotels have begun to reopen as lockdown restrictions ease, but noted that around two-thirds of its venues are in Victoria and Queensland where operating conditions remain restricted, particularly for gaming. The company stated that, as a result, "sales remain materially below prior year levels and the Hotels business is expected to continue to be loss-making until more venues operate with a full-service offer."

Are Woolworths shares a good long-term investment?

I believe Woolworths is very well positioned to weather the COVID-19 storm, even if the pandemic unfolds in multiple waves. Its business operations (except for hotels) should be able to remain stable and even grow their revenues. With Woolworths investing in improving its supply chain efficiencies, more of those revenues would flow to the bottom line.

With a price-to-earnings ratio of 18.13 times and dividend yield of 2.83%, I believe Woolworths shares are an attractive investment opportunity. The Woolworths share price currently sitting at $36.43 per share, putting its market cap at $46.01 billion.

The post Add the WOW factor to your investment portfolio. Why I think the Woolworths share price is a buy appeared first on The Motley Fool Australia.

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Motley Fool contributor Arpan Ranka has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths 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.

Can the Newcrest share price continue to outperform and climb back to its all-time highs?

Enter the knight in golden armour

Central banks globally had expanded their balance sheets at an unprecedented pace following the global financial crisis (GFC). They had only barely managed to start reducing them when COVID-19 struck. Now the pace of balance sheet expansion makes the GFC run look like a child's play.

So, what has this got to do with Newcrest? A lot. Like all mining companies, its financial performance is directly linked to the price of the product it mines and sells – gold. And gold is an asset with strong linkages to inflation as it is considered an inflation-hedge. So, if the central bank balance sheet expansions lead to an uptick in inflation, gold price would be going up as well.

However, contrary to what many expected, central bank actions, post-GFC, have not led to any inflation spike, to date. In fact, what we have seen is quite the opposite. Inflation has continuously fallen the world over. So, could this time be different?

In my opinion, yes, because of the following reasons:

• To deal with the massive socio-economic disruption caused by COVID-19, governments the world over have also entered the fray aggressively with their fiscal policies. We might soon see their central banks directly monetising the government debt. If that were to happen, inflation would soon be knocking at our doors.
• During the GFC, the bailouts had been passed through banks and large corporates. Directly or indirectly, much of that ended up being invested in assets like equities and property, which caused asset price inflation across the globe. During the current COVID-19 crisis, many of the bailouts have resulted in funds directly reaching the public at large. Their expenditure pattern is going to be different and largely on consumables like daily essentials. This might cause inflation to show up at retail level instead of in asset markets like it did during the GFC.
• COVID-19 has caused severe supply chain disruptions and I believe we are yet to see its impact fully in our daily lives. Sharp reduction in demand because of global lockdowns and pre-COVID inventory is not going to last forever. I believe supply will not be able to keep up with demand (even a reduced demand) as the lockdowns ease. And a higher demand than supply scenario will see a rise in inflation as customers bid up the prices of goods and services.

If inflation were to raise its head, one of the most direct beneficiaries would be gold and gold mining companies like Newcrest.

This golden sword cuts both ways

Even if it is deflation and not inflation that we get down the road, deflation is bound to adversely impact asset prices including equities down the line. And gold also happens to be a safe-haven asset – it generally rises in price when equity markets are falling. For instance, in the week ending 12 June, the Newcrest share price rose by 3.6%, while the ASX 200 declined by 2.5%, resulting in an outperformance of 6.1%.

Apart from the above 2 scenarios, gold also does well during periods of geo-political uncertainty. Geo-political fault lines are coming under increased pressure at various points globally and any flare up would be good for gold and Newcrest shares.

Thus, an investment in a gold mining company like Newcrest could do well under multiple scenarios and provide your investment portfolio with much-needed genuine diversification. Its current market capitalisation is $25.41 billion. Newcrest shares are trading at a price-to-earnings ratio of 29.32 with a dividend yield of 1.05%.

The post Can the Newcrest share price crest to new highs? appeared first on The Motley Fool Australia.

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Motley Fool contributor Arpan Ranka 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.