Gold loses more lustre with investors
The picture for gold stocks is brighter than it’s been for some time, but investors, it seems, are just not seeing it.
The picture for gold stocks is brighter than it’s been for some time, but investors, it seems, are just not seeing it.
Recent rises in the price of gold have not yet been factored into the gold share prices, leaving this sector looking “cheap” to some analysts.
Paul Carter, Macquarie Equities’ gold analyst, says the sector is currently under-valued on both earnings and cash flow fundamentals. “The volatility in the gold price has really spooked investors,” he says.
According to Stephen Giubin, head of basic industries at BT, investors were disap-pointed last year when gold rallied strongly and then came off again.
Investors, it seems, are also shying away from gold shares simply because they be-lieve that there’s more glitter in other areas, like the speculative technology sector.
Indeed, Paul Redfern, assistant manager of equities at RetireInvest, says: “I never liked gold and I still don’t. They are only for the brave an foolish and there are considerably better opportunities elsewhere.”
Both Giubin and Carter believe that gold stocks are languishing because the market has been watching what’s happened in the oil sector. Indeed, investors don’t be-lieve that the oil price’s rise is sustainable. Likewise, they have to be more com-fortable that the price of bullion will stay up. Some analysts, however, do believe it will.
“The dynamics of the market are the best that they have been for a long time... and we are gearing up for a period when the gold price will stay firm,” Giubin says.
He notes that last year the European central banks said they would limit the amount of gold they would sell and lend in the market. And, producers have said that they will not sell forward at current prices.
The result is plenty of demand and not enough supply. “The situation will turn. Its just a matter of time,” Carter says.
In favour of gold stocks, too, is the fact that the Aussie dollar is weak which means a better dollar/gold price for producers.
Guibin says the key is to look at producers hedge books. For example, those with put option cover will benefit more strongly from rising prices.
He likes stocks that have volume growth factored in like Newcrest and Delta while Carter favours Newcrest, Delta, Hill 50 and Ranger.
Recommended for you
With the final tally for FY25 now confirmed, how many advisers left during the financial year and how does it compare to the previous year?
HUB24 has appointed Matt Willis from Vanguard as an executive general manager of platform growth to strengthen the platform’s relationships with industry stakeholders.
Investment manager Drummond Capital Partners has announced a raft of adviser-focused updates, including a practice growth division, relaunched manager research capabilities, and a passive model portfolio suite.
When it comes to M&A activity, the share of financial buyers such as private equity firms in Australia fell from 67 per cent to 12 per cent in the last financial year.
