While diversification of equity portfolio is something that investors typically eye for, one space that has always remained attractive is encircled by the safe-haven asset, GOLD. Gold is considered as a safe haven in the international market due to its ability to provide a hedge against systematic risk and non-systematic risk. Gold tends to perform better at the time of global uncertainties in the form of a hedge, and also performs well when an economy thrives; reason being, a thriving economy pushes up gold demand in the form of assets such as Jewelleries, Coins, etc. Thus, having a strategic position in gold could provide investors with a smooth ride over long-term growth. While the recent skyrocketing movement in gold prices and gold stocks has been questioned to be genuine or not, it nevertheless aims to support the long term profile that has always been an encouraging one.
Financial Crisis of 2007-2008
The Global Financial Crisis, which started in early 2007 at a smaller subprime mortgage market in the United States, developed into a full-blown international banking crisis post the collapse of Lehman Brothers in September 2008. The financial crisis dragged down risky assets such as equities; however, gold prices kept their patina and appreciated during global financial, banking and economic turmoil. Gold, from the beginning of 2007 to early 2009, appreciated from the level of US$601.70 to the level of US$1006.40, which marked a gain of more than 67 per cent. However, the global equity indices such as the S&P 500 plunged in the same period from the level of US$1441.61 to the level of US$734.52, which marked a loss of more than 49 per cent. The global market started showing recovery signs in early 2009 till May 2011, from where the S&P 500 again fell. Consequently, gold reached its multi-year high of US$1920.80 in November 2011. After a fall in 2011, the global equity market started showing promising recovery, which marked a slowdown in gold.
In the current scenario, risky assets are witnessing a see-saw amid looming global uncertainties. As per the International Monetary Fund, the re-escalation in the U.S-China trade war is again pressurizing the global economic growth. Apart from that, the rising war tension between the United States and Iran is further fanning the global uncertainties, which in turn is pushing the gold prices with investors’ growing inclination towards the hedge against the risky assets. As seen lately, the gold prices are still shining high.
Ways of Investing:
The route to gold marks a different way of parking the capital such as jewellery, direct investment, Gold Stocks, etc. However, the question is that which way is to be considered the most effective one? The investment in gold in the form of jewellery gives an investor direct possession of gold; however, for this purpose, the jewellery making charges along with relative taxes substantially absorb any potential gains from the price appreciation. The direct investment in gold also involves taking a position in the future contracts, which allows investors to take advantage of the gold appreciation; however, future contracts carry leverage, which could magnify the extent of profit and loss, and give investors a bumpy ride. On the other hand, investing in gold stocks offer some advantages as it allows an investor to take benefits of the movement in the gold price; and apart from that, it enables an investor to hold the equity rights in a gold mining company.
Performance of Gold Stocks
In Australia, the S&P/ASX 200 Resource Index surged from the level of A$4498.80 in May 2019 to the present level of 5072.20, which marks a surge in the resource sector of more than 12.50 per cent. However, a percentage change is not enough to gauge the performance if not compared against a benchmark. The S&P/ASX All Ordinaries Gold Index serves as a benchmark for the comparison, and from the level of A$5424.80 in May to the present level of A$6922.20; the index marks a surge of more than 27.50 per cent. The gold stocks outperformed the upsurge in the overall resource sector with a substantial margin. Not just over a short-term, the gold stocks have also outperformed the resource sector over a longer-term as well, which makes them an attractive investment opportunity. ASX-listed Gold miners such as Evolution Mining Limited (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) have recently soared over the gold rush, and Evolution delivered a return of more than 10 per cent in two months; while Newcrest delivered a return of more than 15 per cent in two months.
In view of the above background and to provide some strategic advantages to our clients, Kalkine presents a Research Report on GOLD to cater to the requirements on investing in potential themes. The stock(s) identified and provided in the report will follow an extensive industry/ peer comparison analysis, relative valuation analysis or other relevant evaluation. The report will touch upon an insight into gold operations, peer comparison and various financial metrics and valuation ratios such as EV/ EBITDA, Price/ Cash Flows, to provide our clients with a holistic picture of gold stocks containing an upside growth potential.
This Precious Yellow Metal based Report will help investors vouch for informed decisions looking at demand and supply trends, new developments, macro/ micro events, industry-wide and company-wide scenarios, and stock evaluation based on fundamental and technical aspects