Investors have had a lot to digest in the past six months. The ongoing trade war between the United States and China has really taken the momentum out of leading economic indicators. In response to this change in sentiment and erosion of market confidence in global growth, central banks globally have been taking an easing bias, and in some cases have been cutting interest rates.
This backdrop has left us promoting our favourite gold exposures, while also drawing attention to the escalating risks around a so-far immune iron ore price. The uncertain market conditions also encourage caution across equity markets, with a preference to accumulate on opportunistic weakness.
Gold is supported by both its safe haven status and arguably the market perception of gold as a store of wealth in the short to medium term. In addition to this, the Australian dollar gold price has been very strong, with current prices of $2,250/oz. Therefore gold miners in this environment have been attracting a lot of attention. Two gold mining businesses we prefer at Morgans are:
- Evolution Mining (EVN), market cap of $8.7 billion. EVN is an Austrailan-focused mid-tier gold producer. Currently EVN 100pc owns and operates five mines (Cowal, Mungari, Mt Carlton, Mt Rawdon, and Cracow) and have an economic interest in a sixth asset (Ernest Henry) with Glencore.
- Ramelius Resources (RMS), market cap of $848 million. RMS is a West Australian focused gold producer that listed on the ASX in 2003 and has been in production since 2006. Currently RMS owns 100pc of the Mount Magnet, Edna May, Vivien, Marda and Tampia Hill gold mines.
Within the current market, there is an appeal for gold fundamentals and how much investors will prioritise safe-haven investments in a low interest rate and high macroeconomic risk environment. We have been discussing at length with our clients about having adequate levels of diversification. With this in mind, with clients who are interested in obtaining gold exposure we have a preference towards exchanged traded funds.
ETF are funds that trade on the stock exchange, just like ordinary shares. They combine the investment advantages of a managed fund, with the ease and cost effectiveness of share trading. Two managed funds that could be considered for gold exposure are:
- BetaShares Gold Bullion ETF-currency hedged (QAU) - this ETF has the objective to track the performance of the price of gold bullion, with a currency hedge against movements in the AUD/USD exchange rate. This ETF is backed by physical gold bullion.
- VanEck Vectors Gold Miners - this ETF seeks to replicate as closely as possible the NYSE Arca Gold Miners index, which is a global gold miners index. Currently this ETF has 44 shares within its structure with a spread of country exposures ranging from Australia through to Canada and the US.
Gold is currently supported by both its safe haven status and asset protection qualities.
Quoting Ray Dalio, a US hedge fund manager: "I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one's portfolio."
With this in mind, it is important to remember that when investing, there is no silver bullet. It is so important to retain high levels of diversification across asset classes, sectors and countries.
- Boh BurimaFinancial Adviser (Authorised Representative: 000341081) Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410
