Following another tough day on Wall Street last Friday, the price of gold has continued to rally. The commodity is currently trading hands at US$1,858/Oz – the highest it’s been since November.
While volatility in equity markets is causing many of us some short-term pain, the opposite is true for those with gold exposure. High US inflation rates coupled with an impending Russian invasion into Ukraine has seen investors rotate into safe-haven assets.
In Aussie markets today, gold producer Northern Star Resources Ltd (ASX: NST) is up over 8%, with other strong gains from Gold Road Resources Limited (ASX: GOR) and Evolution Mining Limited (ASX:EVN).
Why invest in gold?
Gold is generally negatively correlated with shares, meaning if one performs well, the other asset class will often go in the other direction.
Having gold exposure can work similarly to holding shares in the Betashares Australian Strong Bear ETF (ASX: BBOZ). If you can get the timing correct, you can profit from when the broader share market is going through a downturn.
Predicting short-term price movements is where it becomes difficult, however. For example, With the Russia/Ukraine conflict still unfolding, it would be hard to predict the impact this will have on the gold price in the short term given the range of outcomes possible.
Alternatively, your view on gold might be more long-term based around inflation levels. There’s probably less speculation involved here, but still, companies that can perform well in a variety of different economic conditions are far more attractive in my view.
For those with the time and ability to monitor broader macro themes, hedging your portfolio with alternative assets might not be a bad idea. I would argue however that the average ASX investor doesn’t fall into this category.
As long-term investors here at Rask, we believe in identifying companies where the performance isn’t too strongly tied to external forces such as wars and inflation.
If you’re looking for ASX share ideas that fit this category, check out this article: 3 ASX shares I’m looking to buy this month.
