What do to with the lackluster Australian Gold Sector
**This is an extract from the Market Matters Morning Report from 31 January. Click here to get access to the full report and more
The underlying gold price in Aussie Dollar terms is surging to fresh all-time highs enjoying a positive 2-edged sword:
1 – The gold price in its usually quoted $US/oz is making 6-year highs as bond yields fall on global growth concerns and of course the coronavirus increases the attraction of safe assets.
2 – The $A is falling, again because investors are concerned around how much the Chinese economy will slow down leading to a lower demand for our commodity exports.
Here lieth the problem, everything is suggesting the local gold sector should be enjoying strong tailwinds but stocks like Newcrest (NCM) and Regis Resources (RRL) remain well over 20% below their 2019 highs. Potentially this is a sign that investors remain underlyingly bullish equities and safe havens like gold stocks aren’t appealing although this thought process is contradicted by the underlying gold price.
MM’s primary focus is on our 6% exposure to the sector via Newcrest (NCM) and Evolution (EVN) in our Growth Portfolio – as we often say “look after your downside and the upside will look after itself” or reworded look after the positions that are not performing.
Gold Futures in $A Chart
As we can see below its not just the Australian gold sector that’s not performing in 2020, gold miner’s ETF’s like the GDX shown below are not following the underlying precious metal to fresh multi-year highs. However, these ETF’s are only ~7% below their 2019 highs, significantly outperforming our own sector over the last 5-6 months.
We regard the gold sector as a relatively speculative / sentiment driven asset class and recent times have illustrated this clearly i.e. investors got way too bullish as buying primarily out of China pushed stocks higher in 2019.
MM remains bullish gold ETF’s with a 2020 upside target ~8-10% higher.
VanEck Gold Miners ETF (GDX US) Chart
