Why gold is my bet against a 2020 stock market crash

But the question is, in what form should I buy it?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Gold prices have risen by over 21% in the last three months, which isn’t surprising at a time when there’s little clarity on how  the near future could look. The world economy is expected to end on a disappointing note in 2019 and while the outlook for 2020 is better, with persistent uncertainty on the trade deal between the US and China, the two biggest economies, there’s no way of knowing that it will indeed be an improved year.

It also mines gold

Stock markets can be closely correlated with larger economic conditions and in such a scenario, gold investments are a good bet. They’ve definitely held me in good stead as an investor during times of stock market slowdowns! There are plenty of ways to invest in gold, but if we have a preference for stocks, gold miners could be worth considering. Among the set of FTSE 100 companies, Antofagasta is one such. It’s a multi-commodity miner with exposure to gold. The only catch to investing in it in my view, however, is that gold forms a small part of its total revenues, with copper being the biggest contributor. In direct contrast to gold, copper tends to be sensitive to economic cycles, so even if there are gains due to gold next year, I think it’s quite likely that copper will be a downer. As a large, profit making company it can be an invested in for other reasons, but maybe not as a way of buying gold.

More gold here, but what about performance

Instead, I’d look at a pure gold miner like FTSE 250 company Centamin (LSE: CEY), whose financial performance might have been nothing to write home about in the past few years as it has seen both declining revenues and profits, but 2019 has been better by comparison so far. Its share price performance for the year can’t be ignored either. At the last close, the share price was up 27% from the same time last year as it has started picking up recently after a showing depressed performance starting from October onwards. Its dividend yield is around the average FTSE 100 yield of 4.5%, which means that as an investor looking to generate income, I’m no better or worse off than investing in an average company here.

The funds’ route

While CEY may well perform next year and remains a better bet than Antofagasta when investing in gold through the mining stocks’ route, I do think that other avenues can be explored too. One of them is exchange traded funds, which can invest in either gold mining companies or physical gold, if like me you think it’s too much of a bother to hold gold in physical form. I’d rather invest in physical gold ETFs because miners’ business challenges, like those of CEY, can affect performance, even if gold prices are rising. I’d invest in them now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

The Darktrace share price jumped 20% today. Here’s why!

After the Darktrace share price leapt by a fifth in early trading, our writer explains why -- and what it…

Read more »

Dividend Shares

850 shares in this dividend giant could make me £1.1k in passive income

Jon Smith flags up one dividend stock for passive income that has outperformed its sector over the course of the…

Read more »

Investing Articles

Unilever shares are flying! Time to buy at a 21% ‘discount’?

Unilever shares have been racing higher this week after a one-two punch of news from the company. Here’s whether I…

Read more »

artificial intelligence investing algorithms
Market Movers

The Microsoft share price surges after results. Is this the best AI stock to buy?

Jon Smith flags up the jump in the Microsoft share price after the latest results showed strong demand for AI…

Read more »

Google office headquarters
Investing Articles

A dividend announcement sends the Alphabet share price soaring. Here’s what investors need to know

As the Alphabet share price surges on the announcement of a dividend, Stephen Wright outlines what investors should really be…

Read more »

Investing Articles

Turning a £20k ISA into an annual second income of £30k? It’s possible!

This Fool UK writer is exploring how to harness the power of dividend shares and compound returns to build a…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Can I turn £10k into a £1k passive income stream with UK shares?

Everyone talks about the magical 10% mark when it comes to passive income investing, but how realistic is it to…

Read more »

Investing Articles

3 market-beating international investment funds for a Stocks and Shares ISA

It always pays to look for new ways to add extra diversity to a Stocks and Shares ISA. I think…

Read more »