As an investor in the equities market, the one thing everyone fears of is a stock market crash. There is a possibility of a market correction at any moment. In a situation like this, you might feel inclined to panic based on the stock market crashes of the past.
If you take adequate measures to protect yourself right now, you might be able to ride the wave a lot better. One way to do this is by increasing your asset exposure to gold.
How gold can hedge your risk
Investors always buy gold for any one of these reasons: as a hedge, a safe haven, or as a direct investment. The most prominent reason why people buy gold is as a safety measure against a stock market crash.
The precious yellow metal has been rising steadily for the past few months. Its valuation has increased for three straight months to see gold trade at US$1,546 — the highest intraday level for the most-active contract since April 2013.
Historically, gold is viewed as a safe haven against an economic crisis. At a time when economic uncertainty is looming over our heads with the overvaluation of the stock market, investing in gold is the safest bet to get through a market correction with relative ease.
Why could gold prices keep rising?
The U.S. and China trade dispute have affected the stock market. While the recent announcement of delaying tariffs might bring the price of gold down in the short run, rising tensions between the two countries have created a longstanding uncertainty in the stock market.
Canadians can look at the trade tensions between the U.S. and China as an opportunity to make profits. The war-inducing tensions between Iran and the U.S, as well as other issues throughout the Middle East also show that gold will be valued higher in the coming months.
Stocks that get you good exposure to gold
Wesdome Gold Mines
Wesdome Gold Mines is one of the mid-tier gold producers in Canada and a market cap at around $969 million. The company did falter a little bit in its production of gold decreasing from 96,000 oz to 55,000 oz, but just last year, the production came back up. The production went up to 75,000 oz, and Wesdome share prices increased two-fold.
An issue the company can potentially face is the low level of reserves it has at 500,000 oz; Wesdomes’s expected total reserves stand at five million oz.
With a competent management team, plenty of experience, and massive exploration potential on 30,000 acres available, Wesdome is a stock that has substantial upside potential.
Another Canadian mid-tier gold producer, Eldorado Gold has a market capitalization of $1.81 billion right now. This gold producer, along with its subsidiary companies, engages in the exploration, development, and mining of gold properties in Canada, Romania, Serbia, Brazil, Turkey, and Greece.
Eldorado holds a 100% interest in Kisladag and Efemcukuru gold mines in Turkey, the Lamaque gold project in Canada, and Sapes in Greece. Eldorado has plenty of capacity for increasing the production of gold in the coming years. Already up by over 164% in 2019, and it is safe to say that things are looking up for Eldorado.
It is difficult to say that gold prices will keep rising conclusively, but history speaks for itself. The current geopolitical situation also shows a positive outlook for gold. That being said, I think the potential of rising prices of gold makes the gold stocks mentioned above good buying opportunities.
Gold is very volatile, so do not invest all your money in gold stocks. Instead, focus on diversifying your portfolio so that you have a better chance to get through the market correction.
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Fool contributor Adam Othman has no position in any of the stocks mentioned.