Gold is going up and dollars are going down: there are many ways you can play this game
|In times of global or local uncertainty, people may lose their faith in artificial paper currency and return to an asset which has been globally recognised as money for almost 10 000 years.
We have seen demand for gold increase when paper currency is in trouble, including in the Chinese Yuan dynasty in the 1200s, in 1920’s Germany, 1933 USA, 2008 Zimbabwe and 2020 “the world”.
It is interesting to note that whilst prices for physical gold have risen around 30% in the past year, prices for some gold mining companies may have risen by 100% or more.
Gold stocks may climb faster and farther than gold because the companies have expenses which may stay fairly constant when the gold price increases, thus dramatically increasing their profitability.
For example, XYZ mining company may have a cost to mine an ounce of gold at $1000. When gold prices were $1100, they made a 10% profit. When gold jumped to $1500 in September 2019, their profit was 50%. As gold closes in on $1800/oz, the company profit may exceed 80%, with expenses staying around the same.
A selection of gold miners known as “GOLD BUGS” (Basket of Unhedged Gold Stocks) increased by 50% when gold went up 30%. Individual companies such as Great Southern Mining (ASX GSN) are up 300% in value over the same timeframe.
Obviously, some companies may get into trouble or go broke, and you could lose all of your money when your investment is backed by a mining company and not the physical metal. But a return of 300% versus a return of 30% may have you considering that to be an acceptable risk.
Do your own research into different companies, and different industries, as some other commodities (eg. silver, copper, platinum) may also be attractive. Do lots of reading, and always speak to a professional before making any investment decisions.
To get you started, here are some Aussie mining companies whom you may wish to examine more closely. The list is in no particular order, and we make no recommendations on any of them. Please do your own research and talk to an expert before taking any action.
Gold/silver miners on the ASX