Between late 2018 and mid-2020 gold prices surged 70%, ASX shares went parabolic
\nDespite hitting all time highs above US$2200\/oz in 2024 stocks are yet to react the same way
\nSprott managing partner John Hathaway calls this disconnect between gold and share price performance \u201cthe greatest I\u2019ve ever seen\u201d
\nEuroz Hartleys: Expect equities to re-rate as stronger quarterlies are released for the MarQ<\/p>\n
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The mini gold boom between late 2018 and mid-2020 sparked a 70% increase in prices, from ~$US1200 to a peak of ~US$2050\/oz.<\/p>\n
Gold, and to a lesser extent silver, is used as a hedge in times of economic uncertainty.<\/p>\n
During this period precious metals fervour was stoked by a troubled macro picture dominated by COVID, Brexit, trade wars, Hong Kong riots, and weakening global growth.<\/p>\n
This was a wild time and frothy time for ASX miners, junior goldies, and their investors.<\/p>\n
There were numerous success stories, like $2m capped, \u2018bottom-of-the-drawer\u2019 spec stock Spectrum Metals which, in Feb 2019, stumbled on bonanza grade gold\u00a0at its Penny West project.<\/p>\n
Ongoing drilling success (and some parabolic share price action) culminated in a friendly $230m takeover by Aussie mid-tier Ramelius Resources (ASX:RMS)<\/a> early the following year.<\/p>\n Also in 2019, MetalsTech<\/a>\u00a0recorded the\u00a0biggest one-day gain for an ASX stock \u2013 500% \u2014 after announcing that it had signed an option agreement to acquire a gold project in Slovakia.<\/p>\n That was surpassed April 15 the following year by Predictive Discovery (ASX:PDI)<\/a>,\u00a0which gained 733% on a new gold discovery in Guinea.<\/p>\n \u00a0<\/p>\n This time, investors are displaying a complete lack of interest in Aussie gold stocks even as the prices scaled all-time highs.<\/p>\n The divergence between the metal, which is up +30% from its November 2022 low of US$1640\/oz, and stocks performance is puzzling the experts.<\/p>\n Spot gold price March 26, 2024. Source: Market Index.<\/p>\n With prices expected to go higher in the mid-term, most agree this is a buying opportunity.<\/p>\n \u201cI haven\u2019t seen a greater disconnect between the #gold<\/a> price and gold stocks in my career since the early \u201970s. I have also not seen as much investor hostility to gold stocks, nor have I seen gold stocks at these valuation levels relative to book or relative to free cash flow.\u201d<\/p>\n \u2014 Rick Rule Rhetoric (@RickRuleRulz) March 13, 2024<\/a><\/p>\n\n \u201875% of advisors have little to no exposure in gold (<1% of assets) and low interest in adding any\u2019 https:\/\/t.co\/sfztODS9dc<\/a> via @dailychartbook<\/a> pic.twitter.com\/W6KHhRnYv2<\/a><\/p>\n \u2014 Jesse Felder (@jessefelder) February 25, 2024<\/a><\/p>\n\n The ratio of gold stocks to gold just dipped below 0.1 for only the 3rd time in ~50 years. pic.twitter.com\/Wd66E3uSUg<\/a><\/p>\n \u2014 Jason Goepfert (@jasongoepfert) March 5, 2024<\/a><\/p>\n\n \u00a0<\/p>\n \u201cThe malaise seems to be indiscriminate,\u201d<\/a> says Far East Capital Analyst and veteran stock picker Warwick Grigor.<\/p>\n \u201cMany companies with interesting projects continue to fall in the market. Why is that?<\/p>\n \u201cThere is a strong probability that the market has a low level of confidence in many of the management teams, but the doesn\u2019t explain why a well-managed company like Astral Resources is also being shunned.\u201d<\/p>\n Maybe the market is tired of the same old stories and the failure of management to achieve commercial success, he says.<\/p>\n \u201cMaybe investors should be looking for new stories without stale bulls who fill in buyers whenever they stick their heads up above the trenches.<\/p>\n \u201cMaybe there are just too many companies to choose from, and not sufficient investable funds to take them higher. The frustration comes because there are more questions than answers.\u201d<\/p>\n MineLife senior analyst Gavin Wendt says something similar<\/a>.<\/p>\n \u201cI think investors, to some degree, are still nervous about resource equities, including gold,\u201d he says.<\/p>\n \u201cThe gold sector has disappointed over a period of a couple of decades in terms of investor returns and investors have a long memory,\u201d he said.<\/p>\n \u00a0<\/p>\n WA broker Euroz Hartleys says escalating production costs<\/a> could be to blame for lack of interest in the miners, but expects that to change very soon.<\/p>\n \u201cWe continue to see good value in gold equities currently lagging the gold price in both US$ and A$ terms,\u201d it writes.<\/p>\n \u201cThis is somewhat explained by cost inflation severely impacting margins (wages, oil price and reagents), but more recently CY24 we are seeing gold price rise at the same time cost pressures appear to be easing.<\/p>\n \u201cExpect equities to re-rate as stronger quarterlies are released for the MarQ.\u201d<\/p>\n These production reports are by April 30.<\/p>\n Meanwhile the \u00a0share prices of junior explorers, which often follow the lead of the producers, should benefit from expected strong profit margins.<\/p>\n In theory.<\/p>\n Sprott managing partner John Hathaway calls this disconnect between gold and share price performance \u201cthe greatest I\u2019ve ever seen\u201d.<\/p>\n He blames in increasing popularity of \u2018passive investing\u2019, whereby investors purchase a representative benchmark like the ASX200 index and hold it over a long time. Set and forget.<\/p>\n \u201c\u2026passive investing dominates the markets today and doesn\u2019t favour smaller sectors,\u201d Hathaway says.<\/p>\n \u201cThe market cap in the gold mining sector is about the same as that of Mastercard or Home Depot.\u201d<\/p>\n Hathaway says gold miners should be buying back stock because they are \u201cso ridiculously cheap\u201d.<\/p>\n Stock buybacks can increase a company\u2019s share price by reducing available shares on the market.<\/p>\n \u201cThere\u2019s a better return on capital from share buybacks than investing in a big new mine,\u201d Hathaway says.<\/p>\n \u201cIt\u2019s a way of taking advantage of the fact that nobody cares.\u201d<\/p>\n \u00a0<\/p>\n Who knows?<\/p>\n \u201cOne of my partners, way back when we started the gold fund 25 years ago, said, \u2018The only reason anybody should own a gold stock is because they expect the gold price to go up\u2019,\u201d Hathaway says.<\/p>\n \u201cHe was right until now when that hasn\u2019t been right. How much higher does the gold price need to go? I don\u2019t know the answer.<\/p>\n \u201cIs it $2,100? Is it $2,500?\u201d<\/p>\n One thing is certain: at some point, higher gold prices \u201cwill lead to incredible cash flow and profitability so that even this tiny little space will catch somebody\u2019s eye\u201d.<\/p>\n \u201cI noted recently that Stanley Druckenmiller, the legendary investor, has started to sell his Magnificent Seven stocks, and he\u2019s starting to buy big-cap names like Newmont and Barrick,\u201d Hathaway says.<\/p>\n \u201cI\u2019d like to think he\u2019s right. He\u2019s usually been right. I guess that there are still some value investors out there.\u201d <\/span><\/p>\n The post Remember 2019? The next boom for gold stocks could be just around the corner<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"So\u2026. What\u2019s going on in 2024?<\/h2>\n
Where\u2019s the froth?<\/h2>\n
Breakout on the horizon<\/h2>\n
How high must the gold price go?<\/h2>\n
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\nThe views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n