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What happens after the rush?
MARKET INSIGHTS
What happens after the gold rush?
With volatile times upon us, there are still solid reasons to invest in gold. Here are some sector tips to help strike it lucky in the yellow metal’s next eureka moment.
GOLD
JOSH CHIAT
A few years ago gold miners entered a historic bull run often called a modern day gold rush.
A store of value going back thousands of years, gold has lost its lustre as prices which topped record highs of US$2060/oz in the early days of the pandemic have fallen backwards.
At the same time battery metals have become the hot investment theme. But with war between Russia and Ukraine, and inflation raging across the world, is the yellow metal’s time coming again?
“I think everybody should have at least 30-50% of their portfolio in gold,” says Adam Miethke, managing director of Discovery Capital Partners.
Facing the future
Against the negative backdrop of interest rate hikes designed to calm inflation, gold has fallen to ~US$1720/oz today.
The rising US dollar means in Australian terms that loss has been less substantial, falling from ~$2700 to ~$2500/oz.
Gold miners have been hit harder, with the All Ordinaries Gold subindex down 26.14% in 2022. Gold prices are notoriously difficult to predict, but Miethke thinks if coming rate hikes are priced in already, upside abounds.
“Everything’s cyclical and gold is no different,” he said.
“We’ve all made bets in the office in terms of the gold price at Christmas and there’s probably a US$500 difference.”
Some sector picks, you asked
Miethke says $9 billion Northern Star (ASX:NST) is worth a look. It has lost over half of its value since late 2020 despite boasting strong earnings.
Its impressive bank balance could open M&A opportunities.
Further down the pecking order Miethke likes the look of $250 million gold producer Calidus Resources (ASX:CAI), owner of the new 110,000ozpa Warrawoona mine in the Pilbara.
After hitting an all time high of $1.08 in April, Calidus was trading for 62c on July 27.
Miethke also likes $380m Genesis Minerals (ASX:GMD), the fast-moving Leonora exploration play trying to consolidate the historic gold district under former Northern Star and Saracen chief Raleigh Finlayson.
“Since then they’ve taken on Dacian and they’re effectively acquiring that for a fraction of what the company was worth a few years ago,” Miethke said.
Gold
FROM BUST TO BOOM
2015
Gold Mine Production: 3361.3t Gold demand: 4368.5t LBMA gold price: US$1160.1/oz
2021
Gold Mine Production: 3582.2t Gold demand: 4020.9t LBMA gold price: US$1798.6/oz
For most of the past five years Australian gold equities have outperformed the ASX 200.
SOURCES OF GOLD DEMAND 2021:
Jewellery 55.4%
Investment 25.1%
Technology 8.2%
Central banks 11.3%
Source: World Gold Council
Pic: S&P Global
