The below post is a copy of a publication on the 18th of October. Since making the post, gold stocks have performed well and we now look to trim the gains and rotate into oversold industrial & REIT names.
Vaneck Vectors Gold Miners is under Algo Engine buy conditions following the entry condition earlier this year at $30. It is a current holding in our ALL ASX ETF model portfolio.
GDX ETF has corrected from $45 to $38 over the past 8 weeks. We feel buying support will now begin to increase.
Individual names are also now appearing on the radar, such as Newcrest Mining Northern Star Resources, Evolution Mining, OceanaGold and Gold Road Resources.
Gold has sold off in recent trading sessions, following the strength in the US dollar. The sell off has now created Algo Engine buy conditions in Evolution Mining, St Barbara, OceanaGold & Northern Star Resources, all of which are current holdings in the ASX 100 model.
Newcrest Mining is still in the early stages of forming a higher low and may take another few days before we see an Algo Engine buy signal appear.
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.
Our ALGO engine triggered a buy signal for SBM into yesterday’s ASX close at $3.62.
This “higher low” pattern is referenced to the intra-day low price of $3.27 posted December 13th.
In the company’s last report, SBM stated that production costs for Gold were revised to a record low of $907 per ounce, down 3 per cent compared to 2017.
This allowed the gold miner to achieve a record cash flow from operating activities of $303 million for FY 2018.
As such, SBM was able to repay all its debt and the company had almost $200 million cash in the bank after paying its first dividend since 1995.
Overnight losses in spot Gold may pressure the share price back to initial support at $3.50. We have a medium-term upside target in the $4.80 to $5.00 area.
Santa Barbara Limited
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.