Finally, gold is having its day in the sun after months of anticipation and false starts.
But as is the case with most commodity rallies, there’s more to it than meets the eye and not all investors will revel in the spoils.
In Aussie dollar terms, the bullion price has surged 12 per cent over the last 12 months, hitting a record $3350 an ounce on Tuesday. In greenback terms gold has risen 7 per cent over this period, to circa $US2180/oz.
In simple terms, the ‘stronger for longer’ narrative has been driven by expectations that the Federal Reserve is done with fighting inflation (a friend of gold), with no more interest rate hikes (an enemy of the yellow metal).
The US version of the UK Sun reports that “millionaires and elites” (including Facebook founder Mark Zuckerberg) are hoarding the yellow stuff, with small-denomination bars especially in favour because of their ability to be used in bartering transactions.
The usual doomsday prepper concerns aside, one reason cited is the upcoming presidential election and fears of instability, presumably if Donald Trump loses and challenges the result.
Or perhaps they’re more concerned that the orange-skinned one does win.
Meanwhile, central banks have “been hoarding gold like never before”, according to one gold guru.
Perversely, inflows into gold exchange traded funds (ETFs) have been weak since mid 2023 and remain so. Could this mean that retail investors are favouring cryptocurrencies – which have risen from their digital graveyard – as a dubious alternative store of value?
Drill down to the ASX miners and the gold’s aura fades like a day-old fake tan, with producers including Regis Resources (ASX:RRL), Gold Road Resources (ASX:GOR), Capricorn Metals (ASX:CMM), and Westgold (ASX:WGX) reporting weather-related production issues.
The share performance of top 10 producers has been mixed, to say the least.
Shares in Northern Star (ASX:NST), now the sector leader since Newcrest Mining was subsumed by Canada’s Newmont, have marked time year to date. Evolution Mining (ASX:EVN) shares have dipped 14 per cent year to date, while Perseus Mining (ASX:PRU) and Bellevue Gold (ASX:BGL) shares are up 9 per cent and 13 per cent respectively.
RBC Capital Markets prefers up-and-comers with large gold inventories and “lots of optionality to high prices”.
An example is De Grey Mining (ASX:DEG), which is steering its Mallina Gold Project (Hemi discovery) deposit in the Pilbara to first production by late 2026.
The definitive feasibility study envisages 553,000 ounces of annual output in the first five years, with a 1.8 year payback on the envisaged capital cost of $1.3 billion.
With reserves of six million ounces grading an average 1.5 grams per tonne and a total resource of 12.7 million ounces, Hemi is vaunted to become one of the country’s top five gold mines.
Yet De Grey shares have declined 21 per cent over the last 12 months.
Aside from hoarding gold bars in the biscuit tin, for gold purists ETFs are a cheap pure-play exposure to bullion without the fuss of mining the stuff.
Examples are the currency-hedged Betashares Gold Bullion ETF (ASX:QAU). On a fancier note, the ETFs Metal Securities Australia (ASX:GOLD) bestows investors with silver, platinum and palladium exposures as well as gold.
Alternatively, the Van Eck Gold Miners ETF (ASX:GDX) tracks the producers, but with an international flavour. The biggest exposures include Newmont, Agnico Eagle Mining and Barrick Gold.
RBC by the way dubs the gold price as “overly buoyant” and expects the metal to trade at $US2068/oz by midyear.
We love and respect a contrarian view. Still, a $US2000-plus price still should be good enough for an efficient miner to generate decent returns.
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This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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