Why gold is back on these analysts' radar
Aussie gold miners are tipped to benefit from rising prices, writes Nicki Bourlioufas.
Mentioned: Capricorn Metals Ltd (CMM), Evolution Mining Ltd (EVN), Northern Star Resources Ltd (NST)
Gold prices could again surpass US$2,000 an ounce as economic risks mount globally, inflation fear rise and oil prices rebound, according to industry experts.
The yellow metal has rallied in recent weeks. Triggers include worse-than-expected US non-farm payrolls, which rose just 235,000 in August, well below economists’ forecasts of 720 000 new jobs. With further economic contraction possible in the US and other developed economies, investors are flocking to the safety of gold and gold miners.
Shane Langham, a senior private wealth adviser with Sequoia Wealth Management, is confident gold will climb over US$2,000 and test the all-time high $US2,079.68 struck back in August 2020. A key resistance level is US$1,834 but if it breaks that, it could test a recent spike of US$1,916.98 reached in June 2021 and then the all-time high.
“I am bullish on precious metals in the longer term and when I see [any] sell-offs that take place in short periods of time, I see buying opportunities," he says. "Not just in the metals (coins and bars) themselves but in the gold and silver miners listed on the local ASX."
Shane Oliver, chief economist at AMP Capital, also expects the gold pricing to move higher towards US$2000. However, he sees some headwinds:
“As we emerge from the Delta variant outbreak and the global recovery continues next year, that should be positive for the gold price; we could see it go back to US$2000 by the end of next year."
“But we could also see tighter monetary policy, and a rise in bond yields as economies recover will keep a lid on the gold price. Movements in the Bitcoin price will also affect the direction of gold. Bitcoin has been sucking money out of the gold market. But if Bitcoin does go through a rough period, that could be positive for the gold price."
The advantage of holding gold miners is that their price typically rises more than the gold price itself as gold miners and many pay dividends too, adding to the potential return, according to Langham.
“When we look at gold and the rally up from the 2015 bottom to the August 2020 all-time high, gold was up 98.7 per cent," he says.
"Looking at the three largest gold stocks on the ASX over the same time, we see gains of 178.2 per cent for Newcrest Mining, 347.8 per cent for Evolution and 471.6 per cent for Northern Star.
“Likewise, from the August 2020 top to the March 2021 bottom gold fell 19.4 per cent and Evolution fell 31.6 per cent, Newcrest fell 31.7 per cent and Northern Star fell 38.6 per cent over the same time.
"This shows the better bang for buck (in both directions) that Aussie gold stocks have compared with the movement of the physical metal."
Langham attributes this to the AUD/USD exchange rate.
"Gold like all commodities is sold in US dollars but Aussie gold stocks, especially those based here in Australia, have their costs in Aussie dollars," he says.
"When the AUD/USD falls we see an increase in the Aussie dollar price of gold, all things being equal. This means bigger profits for Aussie gold stocks and bigger profits generally see larger increases in share prices."
Langham favours the big three ASX gold stocks Newcrest (NCM), Northern Star (NST) and Evolution (EVN). “Each pay healthy dividend yields (2 to 3 per cent), especially compared the bank interest these days, yet they have very attractive capital gain potential from current levels," he says.
Sam Berridge, portfolio manager and resources analyst at Perennial Investment Management, believes the US Federal Reserve will keep interest rates low for an extended period, supporting the gold price and gold miners.
“I believe the US Fed will be true to their word and keep rates low for an extended period, I’m also of the view that inflation will continue to surprise to the upside. This outlook implies negative real rates will persist, which would be bullish for gold prices,” he says.
Berridge’s preferred ASX miner is Capricorn Metals (CMM). The company recently acquired the Mt Gibson gold project for $40 million, which he believes is worth closer to $300 million as a fully developed mine.
"It has also just commenced producing gold from its Karlawinda operation, which appears to be going slightly better than plan,” he says.
According to research house Gold-Eagle, which surveys gold experts globally on expected prices, the gold price is forecast to rise to $US2,100 over the medium term, retesting its all-time high. A weaker US dollar, negative real interest rates and a potential stock market crash could push precious metal prices higher. When real rates are negative, investors do not receive any return on cash deposits or government bond investments, making gold relatively more attractive to investors.
Global gold expert, Jeff Currie, global head of commodities research at Goldman Sachs, has also forecast gold will rally to the $US 2,000 level.
“The fundamentals really look good, you need that catalyst to get up to our $2000 target,” he recently said.
That catalyst will likely be rising oil prices, with Currie having a US$80 price target for oil. As crude oil prices rise, inflation also rises. As gold is bought as a hedge against inflation, the value of gold rises with oil and inflation.