Gold Sector: Q2-20 Overview
About the author:
- Author name:
- By Dorab Postmaster
- Job title:
- Date posted:
- 05 February 2020, 1:51 PM
- Sectors Covered:
- The Australian dollar gold price is currently trading at record highs (~A$2,380/oz).
- Geopolitical uncertainty continues to shepherd investors into gold and the US$
(global reserve currency) as tensions in the middle east remain high and a new
virus (Coronavirus) continues to spread and affect more people globally.
- 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. Even though
many stocks have rallied hard previously we still see value in the market with stocks such
as RED 5 (ASX:RED) and Regis Resources (ASX:RRL).
We like RED given its:
- Increasing reserve life through expansion at
it's King of the Hill operation
- Short-term operational improvements such as ore sorting
delivering value now
- It looks to be an ideal target for M&A activity
RRL is our preferred
mid/large producer due to its:
- Increasing reserve life organically through underground
extensions at its existing sites as well as continuing to develop the McPhillamys project
- Scaling up production by substituting open pit ore with higher grade underground ore
- Solid balance sheet with +$168M in cash and no debt
Apples and Oranges
Even though gold prices are at record levels, not all gold companies are benefitting from
this environment, the recent troubles experienced by some junior developers are testament
Gold produced at different mines may end up looking the same but each orebody
the gold comes from is different and each company mining the gold is different, and that is
why it is important to understand where the companies sit relative to each other.
A myriad of black swan events along with the RBA expected to cut rates further the current
conditions that have caused the elevated A$ 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 is
currently trading at record high of ~A$2,380/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 not rallied as hard as other similar stocks.
Morgans clients can login to view our detailed report on the Gold sector. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.
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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