What are ASX gold stocks?
ASX gold stocks are shares in companies involved in the mining, production, and refinement of gold. They include mature mining companies with one or more projects already in production or junior exploration companies trying to discover new gold deposits.
Gold shares can also include exchange-traded funds (ETFs) like Global X Physical Gold (ASX: GOLD), which is backed by physical gold. This investment vehicle trades on the ASX just like regular shares but is designed to deliver investors the same returns as gold.
Basically, the Global X Metal fund pools together money raised from multiple investors and uses that to buy gold bullion. And, because the physical commodity backs it, the price of units in the fund should closely track gold prices. You can even redeem your investment in the fund through gold bars.
It’s important to note that not all ETFs are backed by the physical commodity. Because of the costs involved in storing commodities like gold, some ETFs instead trade futures contracts, which can deliver very different returns to the spot market.
If you are considering investing in a gold ETF, it’s always a good idea to check whether the fund is backed by futures or the physical commodity, as they come with different risk and return characteristics.
Other gold ETFs are also available, giving investors differing exposure to the precious metal. For example, the VanEck Gold Miners ETF AUD (ASX: GDX) uses the money raised from its investors to buy shares in some of the largest gold mining companies in the world.
Why invest in ASX gold shares?
Adding some gold shares to your portfolio can provide great diversification benefits. This is because investors see gold as a safe-haven asset – meaning it tends to preserve its value, even during a bear market or recession.
This means that gold exposure can help to protect your portfolio from significant losses during a market downturn. When shares and other risky assets fall, investors may start putting their money into gold, driving up its price. This means your gold shares may rise when the prices of most of your other shares are falling.
Top gold shares on the ASX
Here we profile three gold shares ranked in order of market capitalisation from highest to lowest.
| Company | Description |
| Newcrest Mining Ltd (ASX: NCM) | One of the largest gold mining companies in the world |
| Northern Star Resources Ltd (ASX: NST) | Large mining company with projects in Australia and the United States |
| Global X Physical Gold (ASX: GOLD) | A commodity ETF backed by physical gold |
Newcrest
Newcrest is one of the largest gold miners in the world, with operations in Australia, Canada, and Papua New Guinea. Its mines are long life, meaning they still have plenty of gold reserves to dig up, and they have further exploration projects underway.
Newcrest has enough gold reserves to sustain its current output well into the future, so it is a relatively low-risk option for investors seeking some exposure to gold.
Because the company’s share price tends to move closely with the gold price, an investment in Newcrest can provide many of the same benefits as an investment in gold itself. This means it may be a good defensive share to add to your portfolio.
Northern Star
The next largest ASX gold miner is Northern Star, with operations in Western Australia and the United States. It isn’t as large or as diversified as Newcrest, which means it might be slightly higher risk. This is because it is more heavily reliant on the success of a small group of mines for its profits. So, if one of them stops producing, for whatever reason, it can hurt Northern Star’s bottom line.
That being said, Northern Star has increased its production significantly over recent years, which has caused its share price to outperform its larger rival.
Given the company has a policy of returning between 20% and 30% of its cash earnings to investors v as dividends each year, it has been an excellent little earner for income investors, too.
Global X Physical Gold
As we’ve already mentioned, Global X Physical Gold is a commodity ETF designed to track the price of gold. An ETF like this is the best way for investors to gain exposure to gold, short of buying the actual bullion themselves.
The reason for this is because the fund is backed by physical gold bars stored in a vault in London. This means that a unit in the fund is essentially equivalent to an ownership stake in real gold, ensuring its unit price remains highly correlated with the gold price.
This makes it the best option for investors seeking exposure purely to the gold price, without any company-specific risks from investing in a gold miner or gold exploration company.
What might the future look like for ASX gold stocks?
Throughout history, gold has proven itself a strong and stable investment, and there’s no reason to doubt it won’t continue to do so in the future. This means that investing in gold will likely remain a good way to hedge against the risk of a recession.
However, in the shorter term, it is quite likely gold prices will remain subdued if central banks continue to hike interest rates to curb inflation. This might see investors continue to invest in newly-issued high-quality government bonds rather than gold. Bonds are also seen as safe-haven assets in risky environments and are sometimes preferred over gold.
This is because the yields on newly-issued bonds will increase as central banks hike interest rates. On the other hand, an investment in gold does not pay any interest. So, despite high inflation and extreme volatility in equity markets, investors sometimes prefer to put their money into bonds rather than gold.
However, this shouldn’t detract from gold’s long-term effectiveness as an inflation hedge.
Benefits of investing in gold shares
Investing in gold stocks can provide many of the same benefits as a direct investment in physical gold. Let’s look at some of the main benefits.
Diversification: We’ve already mentioned the diversification benefits you can gain from investing in gold. Gold is typically somewhat immune to falls in the share market, making it a great way to protect your portfolio from significant losses in a downturn.
Low price volatility: The price of gold is relatively stable over time and generally doesn’t fluctuate as much as share prices. This can give you some peace of mind when share markets are volatile.
Inflation hedge: Rising inflation can quickly erode the value of your investments. However, gold has historically outperformed inflation, providing an excellent store of value.
And the cons?
Low-returning: Gold has proven to be a stable store of value over time. This typically makes it a low-risk, low-returning asset. This means that its value is unlikely to suddenly increase the way some growth shares might.
Company-specific risks: Depending on the type of gold share you invest in, you may be exposed to other risks apart from the price of gold. For example, production costs for certain miners may increase, negatively impacting profits, or a mining exploration company may run out of capital and abandon operations.
Are ASX gold stocks a good investment?
Because of how effective a diversifier gold can be, just about every portfolio can benefit from having at least some exposure to the precious metal. Gold is often seen as the best defensive asset to hold, which could help minimise your losses in a market downturn.
However, not all ASX gold shares are the same. On the one hand, shares like the Global X Physical Gold ETF are designed to track the price of gold quite closely. On the other hand, shares in junior miners like Gold Road Resources Ltd (ASX: GOR), with significant unproven exploration projects, can sometimes perform markedly differently to gold.
Which is right for you depends on your risk tolerance and investing objectives.