Unlike steel, for most of us, gold can’t be used for cars, to build office towers or for many other practical purposes. Yet for centuries, we’ve been obsessed with this largely useless metal. With talk that growth is rolling over, is now the ideal time to talk about gold? Julia Lee Equities Strategist at Bell Direct answers these questions on the glittery stuff.

Why do people invest in gold?

There’s 3 key reasons to look at gold:

1.     As a hedge.

2.     As a safe haven asset.

3.     As an investment.

Let’s go through each one of these in more detail:

• Hedge

When looking at gaining the benefits of diversification, it’s about choosing assets that don’t move together. Gold moves differently to equity and bond markets. Gold can be an important part of a portfolio because its price often moves in response to events that can see shares or bond prices decline.

• Safe Haven

When the stock market crashes, gold can see safe haven demand. If you think that markets will see increased volatility and wish to profit from that view, then gold is one way to take that view.

• Direct investment

Many investors buy gold to hedge against the US dollar. As a currency falls, it creates higher prices in imports and inflation. As a result, gold is a defence against inflation. Recently, with the US Federal Reserve raising interest rates, the US dollar has been moving upwards and therefore the gold price has come under pressure.

What’s the outlook for gold?

A stronger US dollar makes gold more expensive for overseas buyers. Rising interest rates also make gold less attractive. On the converse, looking out 18 to 24 months and if you think that we have seen the peak for company margins and earnings growth, then we may see a turbulent time for equities, which could be good for gold. A stronger dollar makes gold more expensive for overseas buyers, while higher Treasury yields make the metal less attractive.

Are there seasonal factors that affect the gold price?

Yes. During Indian wedding season, which runs October to December and again from mid January to end March, India can account for 20% of global demand for gold, according to the World Gold Council. Last year, these periods saw Indian gold imports increase by 67% to 855 tons. Hence physical buying can offer some support to the market.

How do you analyse gold companies?

Key things to look at include: cost of production, any hedging in place, mine life, new technology, water supply, power and currency.

Do you go for gold stocks or ETFs, gold coins, gold bars etc.?

If you are looking to gold because you think there will be a stock market crash, then physical gold would be better. That’s because when there’s a crash, all stocks tend to be sold off, including gold companies. If you’re using gold as a hedging tool, then a gold ETF or gold companies are popular. From an investment perspective, gold companies offer great potential upside and downside compared to physical gold coins or bars.

What’s your favourite stock/s?

I’ll give you two stocks.

1. Saracen (SAR) is an Australia-focused gold explorer. In terms of growth, it has outlined a plan to increase production to 350koz/pa, however with crushers, this could be pushed to 400koz/pa. The cost of production in the September quarter was AISC $993/oz.  It has a strong balance sheet with around $131m net cash.

2. Northern Star (NST) is another gold stock, with ambitious growth plans. The acquisition of Pogo means three tier 1 assets. Adding Pogo means that it’s hard to compare metrics with past quarters. The last quarter saw production costs at ASISC $1122/oz. There is upside from increasing its production profile and margins.