Volatile currency markets are adding complexity to gold sector investing
Volatile currency markets are adding complexity to gold sector investing. A weaker Australian dollar helps boost the profitability of Australian gold producers. A falling Australian dollar, at the same time, is usually a disincentive to overseas investors buying Australian dollar denominated assets. Additionally, in the gold sector, a rising US dollar usually signals US dollar gold price weakness. So, for Australian gold sector investors, the question comes down to whether the macro forces affecting investment returns and signaling the direction of the gold price in international markets will be more or less powerful than the forces driving industry profitability. Until the end of February, higher profitability had been winning. But not so, now. An added complication arises because not all ASX-listed gold producers operate within Australia. The Philippines peso and the Turkish lira, for example, have moved in different directions. A gold sector equity investment has the potential to become a complicated foreign currency trade as long as foreign exchange markets are as volatile as they have been recently.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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