Last week’s extreme volatility in global equity markets has been a net positive for the local gold mining names.
After trading as low as $1060.00 in mid-August, Spot Gold reached a 2-month high at $1226.00 last Thursday.
As illustrated on the chart below, the yellow metal is still down more than 10% over the last 6-months.
However, with last week’s change in the overall risk dynamic of equities, investors may increase their holdings in Gold as a hedge against market uncertainty.
Combined with a weaker Aussie Dollar, we see stable gold prices lifting the shares of the local miners.
Our preferred names in the Gold sector are: NCM, SBM, SAR and EVN.
After reaching an intra-day high just under $1370.00 in mid-April, the price of Spot Gold has dropped over 12% and matched a 1-year low of $1210.00 last week.
The recent strength in the USD, weakness in the Yuan and uncertainty over global trade tariffs are some the reasons used to explain the slide in the yellow metal over the last 2 months.
What is clear is that the technical picture in Gold is deeply oversold and due for a material correction higher.
As illustrated in the chart below, the last 8 times that Gold fell more than $90.00 over a 3-month period, the rally that followed averaged close to $150.00, or just under 13%.
Despite the recent weakness in Spot Gold, local Gold miners have performed reasonable well and have expanded production both domestically and abroad.
Our ALGO engine is now showing buy signals for NCM, SBM, NST, OGC, SAR and EVN.
In addition, NST, EVN and NCM are included in our ASX Top 100 model portfolio.
We currently see the $1235.00 area in Spot Gold as an inflexion point which could drive the price higher and would be a net positive for these local Gold names.
One of the main policy points from Wednesday’s FOMC meeting was that the US Central bank will accept an overshoot in inflation even if overall GDP growth starts to slow……..more commonly known as Stagflation.
Stagflation is an economic condition which is characterized by higher inflation and lower GDP and employment growth, which is not bullish for equity markets and not bearish for Gold.
Over the last 6-months, Gold has been trading in a broad pennant formation bound by $1365 on the topside and supported at $1300 at the lower end of the range.
Due to recent USD strength, the yellow metal is currently trading near the bottom end of the range near $1315.
If US inflation rates continue to probe higher, we expect the USD/Gold correlation to soften. In an inflationary environment, Gold and the USD usually move higher simultaneously.
As illustrated in the charts below, the local gold mining stocks have been showing divergence with SBM, EVN and SAR near all-time highs, while NCM is trading at $21.55, almost $3.00 below its 52-week high.
Our base case is that Gold will rise over the medium-term, which should be supportive for the local mining names.
For more information on investment strategies within the Gold sector, call our office at 1-300-614-002.
Santa Barbara Mines
Over the last 6-months, the price of Spot Gold has been capped just below the $1370.00 level three times.
With the current price around $1350, the question now is: will Gold be capped again, or will it break over $1370 and head higher?
Looking at Friday’s Commitment of Traders report offers an interesting perspective. The numbers show that the speculators are long and the commercial accounts are very short.
As a rule, since the commercial accounts actually hold the Gold, they are more likely to cover their short exposure quickly.
As such, we see a growing likelihood that Spot Gold will trade back over $1370 for the first time since July 2016, over the medium-term.
This extension of the recent rally will lift local mining names such as NCM, SBM, EVN and SAR.
The Price of Spot Gold slipped to a 3-week low of $1309.00 as the inverse correlation to the USD strength continues to influence price flows.
By the NY close, the yellow metal had found buyers into the weekend to settle at $1314.00.
With the FOMC expected to raise the FED Funds target on March 22nd, market commentators have noted that the price of Gold has rallied after the last 5 rates hikes in this cycle.
As illustrated in the chart below, Spot Gold traded at $1240 when the FOMC last raised rates on December 13th. By January 25th, Gold had rallied almost 10% to reach $1350.
Some of the local mining names we are following into the buy zone include NCM, EVN, SBM and SAR.
In addition, investors looking for a “pure play” on Spot Gold can buy the BetaShare Gold ETF with the symbol: QAU
BetaShare Gold ETF: QAU
After posting a low of $1238.00 on December 12th, Spot Gold has moved higher and reached $1270.00 in NY Trade last night.
The response of Newcrest shares has been relatively muted, but we expect a pick up over the near-term.
Our ALGO engine triggered a buy signal for NCM on December 15th at $21.75.
We still prefer the long side of NCM, along with the smaller producers SBM, SAR and EVN, and have an upside target near the November 29th high of $24.25.
Our ALGO engine triggered a buy signal on Newcrest Mining at $21.90 yesterday.
Clients and subscribers were notified via email that NCM has been added to our ASX Top 50 portfolio listed in the Premium section of the blog.
The recent slide in Spot Gold prices has impacted domestic Gold producers unevenly. Shares of the smaller firms like SBM, EVN and SAR have held their value and even firmed over recent sessions relative to NCM.
We believe that NCM’s recent sale of its 89.9% stake in Bonikro mine in Cote d’Ivoire has caused some short-term pressure to the share price value investors will support the share price in the $21.80 area.
The current momentum indicators are in oversold territory and the ALGO engine flagged the “higher low” formation based on the October lows near $20.90.
As the price of Spot Gold moves back into the $1300 area, we expect NCM shares to move back into the high $24.00 handle.
Over the last two weeks, the price of Gold has made two attempts at breaking through the $1300.00 mark.
On both occasions, the yellow metal dropped back to find support just above the $1270.00 level.
This technical pattern is known as a “pennant” formation and is a continuation pattern. In this case, the break out points for range extension are $1308 and $1263.
Fundamentally, the case for buying Gold remains compelling. The surge in volatility across global stock markets combined with heightened geopolitical uncertainty supports the logic for owning Gold or Gold mining shares.
We expect the price of Gold to break through the $1300 level over the near-term. Our preferred Gold mining shares are NCM, EVN, SBM and SAR.
Investors looking to profit from a rally in Gold can either buy these shares outright, or buy their CFDs listed on our SAXO Go platform.
Santa Barbara Mining
A few weeks ago, we posted a report outlining the correlation between the Chinese Golden week holiday and the price of spot Gold.
Over the last four years, the price of Gold has dropped into, and during, Golden Week and then traded higher once the Chinese markets came back online.
As the chart below illustrates, spot Gold posted a low of $1262.00 last Friday and has since lifted by over $30.00.
We continue to look for Gold to trade higher into the end of the year and re-test the the $1350.00 level.
As such, we like long positions in NCM, EVN and SAR.
On August 8th, Spot Gold posted a low during the New York session of $1254.00.
Overnight, the yellow metal posted a 10-month high of $1341.00, a 7% gain in less than a month.
Over the same period of time, Newcrest mining has rallied from $20.25 to post a high of $23.70 early in yesterday’s session. This move represents a bit less than a 17% gain.
Even though the heighten geopolitical tensions which have supported the Gold price are still very much a part of the market, technical momentum indicators are signalling that investors can expect a short-term correction lower.
We believe the medium-term price trajectory in Gold will remain intact after the overbought conditions are alleviated.
As such, we suggest taking profits today in NCM, along with the smaller Gold miners: EVN, SAR, NST and OGC.