Investing in Gold or Silver

Despite the uncertainty and challenging times this year because of COVID-19, many investors have flocked to defensive assets by investing in gold or silver, which has paid off handsomely, particularly given that the All Ordinaries Index is down over 10 per cent. Since 1 January 2020, gold is up around 24 per cent while silver has performed even better, as it is up over 40 per cent for the year.

Should you buy, hold or sell these precious metals?

While these figures indicate that these precious metals have been great investments this year, you cannot compare an index of stocks, such as the All Ordinaries Index against a single commodity. That’s because there were three stocks in the ASX top 100 that performed better than gold and silver including Evolution Mining, which is currently up 62 per cent, while Fortescue Metals and Domino’s Pizza are both up over 50 per cent. In addition, six stocks were up over 20 per cent for the year but the challenge for investors is identifying those stocks that are likely to perform well.

So is gold and silver a good investment right now and are these commodities likely to rise or fall in the last quarter of 2020 and into 2021?

Gold and silver are very safe, long-term investments; in fact, when it comes to gold, the long-term trend shows that it grows at an average rate of around 10 per cent per annum. That said, these assets have an inverse correlation to world markets. In other words, if the stock market is rising, gold and silver are generally flat or down. Therefore, if you decide to invest you need to expect there will be years of limited to no growth.

So where are gold and silver heading in the next year? Both will continue to rise until mid-next year but before you get too excited, most of their current run is over, so the growth will most likely be around 10 per cent or possibly a little more. That said, if the stock market falls heavily again, anything is possible.

What were the best and worst performing sectors last week?

The best sectors included Materials up 2.39 per cent followed by Information Technology up 1.08 per cent, while Energy was not far behind up 0.85 per cent. The worst performers included Financials down 1.78 per cent followed by Consumer Staples down 0.85 per cent and Utilities down 0.76 per cent

Looking at the ASX top 100 stocks, the best performers last week included Northern Star Resources up 11.80 per cent, Evolution Mining up 11.03 per cent and Scentre Group up 8.10 per cent. The worst performers included Cleanaway Waste Management down 13.49 per cent followed by Unibail-Rodamco-Westfield down 10.54 per cent and AMP down 9.09 per cent.

What's next for the Australian share market?

It seems that the market is in ad-nauseum given that the All Ordinaries Index has spent almost the last three months rising for half of the week and falling the other half. That said, over the last 18 trading days, while the market has continued to close lower 50 per cent of the time, it has fallen more in price and is currently down nearly 5 per cent. Given this, I believe the market is slowly moving down into its next low, which I believe will be below 5,800 points and possibly as low 5,400 points.

The good news is that the market is moving down in a slow and orderly fashion rather than fast and furiously, like we experienced in March of this year, which is good for investors as they have time to adjust their portfolios. My expectation is that the market will continue to fall into a low over the next four weeks, with it likely to present many good buying opportunities following this, so investors will be rewarded for their patience.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.