Gold: Our top stock picks

About the author:

Dorab Postmaster
Author name:
By Dorab Postmaster
Job title:
Analyst
Date posted:
07 November 2019, 11:10 AM
Sectors Covered:
Resources

  • The Australian dollar gold price briefly breached A$2,300/oz (record high) this quarter before settling back to A$2,200/oz.
  • Geopolitical uncertainty continues to shepherd investors into gold and the US$ (global reserve currency) as a safe haven, however some green shoots in the trade war talks have sprouted.
  • A strong gold price and weak A$ exchange rate equates to record high A$ gold prices. This positions A$ gold producers extremely favourably.

Our picks in gold

Many gold stocks have rallied strongly due to the favourable commodity price however the last two months of the quarter saw some of these stocks pull back as some green shoots in the trade war talks were seen.

Even though many stocks have rallied hard previously we still see value in the market with stocks such as Red 5 (RED) and Regis Resources (RRL). (Morgans clients can login to view detailed reports and price targets)

We like Red 5 (RED) given its:

  1. Increasing reserve life through expansion at its King of the Hill operation.
  2. Short-term operational improvements such as ore sorting delivering value now.
  3. It looks to be an ideal target for M&A activity.

Regis Resources (RRL) is our preferred larger producer due to its:

  1. Increasing reserve life organically through underground extensions at its existing sites as well as continuing to develop the McPhillamys project.
  2. Scaling up production by substituting open pit ore with higher grade underground ore.
  3. Solid balance sheet with +$147m in cash and no debt. 

Apples and oranges

Even though gold prices are at record levels, not all gold companies are benefiting from this environment, the recent troubles experienced by some junior developers is testament to that.

Gold produced at different mines may end up looking the same but each orebody the gold comes from is different and each company mining the gold is different, and that is why it is important to understand where the companies sit relative to each other. 

Our view 

With the trade talks ongoing, Brexit still unresolved and the RBA expected to cut rates further, the current conditions that have caused the elevated A$ gold price look to be around for a while yet.

Gold is already one of our most preferred commodity exposures, but it has been promoted up the ranks as a favourite given its attraction as a safe haven.

Our positive view on gold has been 'supersized' by the current strength in the Australian dollar gold price, which broke through an all-time record high of A$2,300/oz.

While gold stocks have already posted strong performances, we see opportunities in junior and emerging companies as well as some larger producers such as RRL that have pulled back to attractive levels

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More information

Morgans clients can access further detailed analysis on the Resources sector via our research section of the client website. If you would like more information, please contact your adviser or nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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