February 09, 2023
Last year was terrible.
According to Morningstar, both major asset classes, stocks and bonds, lost 19.4% and 12.9%, respectively.
Crypto and tech stocks fared worse. They may need years to recover.
Yet gold delivered on its main promise: protecting portfolios from major losses.
Based on data from London Bullion Metals Exchange (LBMA) last year, gold prices kept steady with a slight 0.4% loss. Essentially, gold stayed flat.
This is why "smart money" investors always hold gold. It helps them weather the most severe market conditions and can even deliver positive returns during market crashes.
In 2023, investors should put gold on their radars. Here's why.
1. Gold is a safe haven investment
The metal served as a currency for centuries and still keeps its value when other investments-or existing currencies-lose theirs.
On average, during the latest ten major market crashes, gold gained 19.4%. At the same time, stocks, represented by S&P 500, lost 32.2% on average.
No one knows for sure if we'll face a recession this year or not. But if history is any guide, gold should keep its value during the market crash everybody expects.
2. Central banks are hoarding gold
As noted above, the most prudent investors hold some gold in their portfolios. They either purchase physical metal or invest in ETFs, such as SPDR Gold Shares (GLD). This works for individual investors, institutions, and global governments. At the end of last year, central banks started buying gold at a rapid pace. In just a couple of months, they accumulated 84 tonnes of gold.
That's not a coincidence. Central banks are also diversifying their reserves with gold.
3. The US dollar is in decline
Gold is trading in fiat currencies. And the most widely accepted currency is the US dollar.
Last year, the greenback gained in value against its peers. Investors were choosing it over other global currencies. It led to lower prices of goods trading in the USD, including gold.
However, at the end of 2022, the US dollar started declining in relative value, and gold began to appreciate.
We will likely see the same divergence between gold and USD this year. If this trend continues, it will support gold.
Gold is a safe haven investment. A lot of investors use it to hedge their portfolios against risk.
But there's another aspect of gold investing you should be aware of. If you have a higher risk tolerance, you might find gold stocks to be a great way to leverage your exposure to the price of gold.
They often multiply gold's own performance, especially when gold prices are rising.
But don't rush to buy just any gold stock. Junior mining companies are risky, so you need to do a lot of due diligence. At the least, make sure the company:
Like Aztec Minerals (TSXV:AZT, OTCPK:AZZTF), a Vancouver-based gold exploration company.
It works on two prospective gold projects in Arizona (Tombstone) and Mexico (Cervantes). Both are under active exploration programs. So far, both have delivered strong intercepts.
So far, the best drill results at Cervantes in Mexico:
And at Tombstone in Arizona:
While past performance is not a guarantee of future success, it's a good sign that these projects have exploration potential. And, in our opinion, Aztec Minerals has a good chance to establish gold resources at both properties.
At the end of September 2022, it had C$2.5 million in the bank after raising C$3.4 million in June 2022 at C$0.30 per share.
Alamos Gold (TSX:AGI, NYSE:AGI), a Canada-based gold producer, invested C$2.4 million in Aztec during the latest financing round. That's a strong vote of confidence from a multi-billion gold miner and also a strategic move.
Alamos operates a gold mine 60 km away from Aztec's Cervantes project in Mexico. That's relatively close. And Alamos managers may be aware that they can extend the life of Alamos's own mine by adding a new deposit to the mine plan.
For this year, Aztec Minerals plans to continue its exploration programs at both projects.It will be another busy year for the company, and exploration results will be a major catalyst for the story.
More importantly, Aztec is still trading around C$0.30 per share. It means investors can buy its shares at prices similar to what a multi-billion-dollar gold producer and a strategic investor paid for Aztec's shares last summer.
Keep in mind that junior gold stocks can be a potentially rewarding investment, but they are also inherently risky. Do your own due diligence before investing in any company, and don't invest more than you can afford to lose.
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The companies we focus on are typically smaller, early-stage junior mining companies. Investments in such companies by nature carry a high level of risk. Anyone who cannot accept this risk of total and sudden loss of their investment should not invest in such securities.
The information contained in this article is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. The information in this article reflects the current opinion of the Publisher and is subject to change. The Publisher undertakes no obligation to update any such information.
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