Gold Sector: Q2-20 Overview

About the author:

Dorab Postmaster
Author name:
By Dorab Postmaster
Job title:
Analyst
Date posted:
05 February 2020, 1:51 PM
Sectors Covered:
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  • 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:

  1. Increasing reserve life through expansion at it's 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

RRL is our preferred mid/large 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 +$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 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

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.

More information

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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