Which Gold stocks should we buy?
Stock
Evolution Mining (EVN) $3.25 as at 25/05/2018 Northern Star (NST) $6.16 as at 25/05/2018 Newcrest Mining (NCM) $20.62 as at 25/05/2018Event
In the press we always see gold quoted in $US/oz and as such the precious metal has traded sideways to lower for the last 5-months with it actually making fresh 21-week lows on Monday, down around 6% from the highs of 2018. We will take a look at resource stocks in this report. Gold $US Chart
However, the story is very different when we look at gold in Australian dollar terms. In $A terms gold had rallied slowly all year actually making fresh 18-month highs on Monday.
This clearly shows the benefits of a weak local currency ($A) to our gold miners and importantly remember we are bearish the $A targeting the 65c area, over 10% lower.
Gold $A Chart
The Australian dollar has fallen in 2018 but remains ~10% above its lows of 2016 i.e. below the psychological 70c area.
Interestingly the 2 ½ year recovery in the $A coincides perfectly with the boom in our resources sector e.g. BHP has more than doubled.
The Australian Dollar ($A) Chart
As you know at MM we believe the $A will ultimately fall to around 65c due to a number of aligning macro-economic factors, hence our gold stocks being effective offshore earners should perform well.
Also, if we are correct and global equities will experience a correction of ~20% in 2018/19 the gold sector has a good chance of being a perfect place to “hide”.
Hence today we are going to review our thoughts on 3 leading Australian gold stocks with a view to buying one in the coming weeks / months – seasonally, like much of the local market, the end of June / start of July is the time to wade into our gold sector.
Market Matters Take/Outlook
1 Evolution Mining (EVN) $3.25 EVN again looks strong after correcting ~10% over the last 3-weeks and flirting with our $2.90-$3 targeted buy region. This stock like many in the resources space can be fairly volatile and has already experienced 4 corrections of between 10 and 23% since its major swing low in December 2016. Hence while we are a buyer of EVN into weakness we are not chasing strength at this point in time.- MM is currently a buyer of EVN below $3.
2 Northern Star (NST) $6.16
NST has enjoyed a strong 18-months but after correcting ~13% since the end of March continued weakness below $6 would not surprise.
- We are neutral NST at present and prefer EVN into any sector weakness.
3 Newcrest Mining (NCM) $20.62
Heavyweight NCM has been the clear “dog” of the sector not only failing to rally with EVN and NST but actually managing to fall – over the last 12-months NCM is down -0.8% compared to EVN which is +32%. Unfortunately, NCM has been a serial market disappointment on the corporate level, at times rivalling QBE with its negative consistency.
However, as we regularly say successful investing is about looking forward, not back and NCM would become interesting below $19 in the coming months.
- MM may consider accumulating NCM into weakness below $19 later in the year but EVN is our preferred play at current prices.
