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Market wrap: Pizza is outperforming gold and silver

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Despite the uncertainty and challenging times this year because of COVID-19, many investors flocked to defensive assets, such as silver and gold, which has paid off handsomely, particularly given that the All Ordinaries Index is down more than 10%.

Since January 1, 2020, gold is up around 24% while silver has performed even better, as it is up more than 40% for the year.

While these figures indicate that these were great investments this year, you cannot compare an index of stocks, such as the All Ordinaries Index against a single commodity.

market wrap dominos shares pizza outperforming gold

This is because there were three stocks in the ASX top 100 that performed better than gold and silver, which include Evolution Mining, which is currently up 62%, while Fortescue Metals and Domino's Pizza are both up more than 50%.

In addition, six stocks are up more than 20% for the year but the challenge for investors is identifying those stocks that are likely to perform well. So is gold and silver a good investment right now and where are these commodities heading in in the last quarter of 2020 and into 2021?

Gold and silver are very safe, long-term investments; in fact, when it comes to gold, the long-term trend shows that it grows at an average rate of around 10% per annum. That said, these assets have an inverse correlation to world markets. In other words, if the stock market is rising, gold and silver are generally flat or down. Therefore, if you decide to invest you need to expect there will be years of limited to no growth.

So where are gold and silver heading in the next year?

Both will continue to rise until mid-next year but before you get too excited, most of their current run is over, so the growth will most likely be around 10% or possibly a little more. That said, if the stock market falls heavily again, anything is possible.

Best and worst performing sectors so far this week

The best sectors include Industrials up around 1.6% followed by Materials up more than 1%, while Energy and Healthcare are not far behind. The worst performers include Financials down more than 1% followed by Consumer Staples and Information Technology, which are both just in the red. That said, I expect our market to close lower this week, so these figures are likely to get worse later today.

Looking at the ASX top 100 stocks, the best performers so far this week include Northern Star Resources up more than 11%, Scentre Group up more than 10%, while Evolution Mining is up almost 10%. The worst performers include Cleanaway Waste Management down more than 12%, Fortescue Metals down more than 6%, while IOOF Holdings, Macquarie Group and Lend Lease are all currently down more than 5%.

What's next for the Australian share market

It seems that the market is in ad-nauseum given that the All Ordinaries Index continues to rise early in the week before falling away in the later part. In the last 17 trading days, it has closed lower on eight of these days and fell nearly 5% as at market close on Thursday.

The market slowly moved down into its next low, which I believe will be below 5800 points and possibly as low 5400 points.

The good news is that the market is moving down in a slow and orderly fashion rather than fast and furiously like we experienced in March of this year, which is good for investors as they have time to adjust their portfolios.

My expectations is that the market will continue to fall into a low over the next four weeks, with the market likely to present many good buying opportunities following this, so investors will be finally rewarded for their patience.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.
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