A month ago we posed the question “When should we rotate between gold, coal, and lithium – Part 2.” After watching gold slip $US40 like a proverbial knife through butter in the early hours this morning we thought this morning was an ideal time to revisit the sector especially as we hold a chunky 8% of the Flagship Growth Portfolio in Evolution (EVN) and Newcrest (NCM). Although we believe gold is likely to retrace its recent advance short term we believe second-guessing such a move could easily prove costly with regards to portfolio performance i.e. at MM we are investors, not traders.
There are some interesting dynamics at play with gold trading within striking distance of its all-time high yet the Australian gold stocks are languishing significantly below levels scaled in 2020 when bond yields were hovering around zero e.g. Evolution -46%, Newcrest (NCM) -24% and Northern Star (NST) -16%. These numbers show the heavyweight local Gold Sector remains substantially below its COVID high hence we believe surprises will be on the upside even when gold experiences inevitable dips.
- MM still believes it’s a matter of when, not if, gold breaks above $US2,100/Oz but our “best guess” is next FY.
MM is bullish toward gold medium/longer term
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When we look at gold in $A terms the picture is even more bullish with the precious metal already posting fresh all-time highs this month i.e. very relevant to domestic miners who we believe are starting to play some major catch-up to the underlying commodity. Investors weren’t believers but now it appears like some fund managers are caught underweight in the sector.
- Gold and its respective stocks may pull back over the coming months but we prefer a buy-the-dip approach at this stage of the cycle.
MM remains bullish toward both gold and the sector through 2023/4.
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