Gold is shining brighter, and the prices are showing a remarkable upsurge amid FED and market stance for a lower interest rate in the United States. The central banks are showing greater optimism in the gold prices. The recent survey conducted by the world gold council suggested that global central banks are not looking forward to reducing their gold reserves over the next 12-months.
The gold prices are presently taking the support of the discrepancies between the global equity market and the bond prices. In the status quo, the equity indices are soaring, and so is the bond price.
The market participants are looking for a hedge over falling bond yields or the market discount rate and expensive bonds, which is propelling the gold prices higher.
The gold miners are leveraging over the gold surge in terms of higher sales proceed and are appreciating.
Gold on Charts:
XAU Daily Chart (Source: Thomson Reuters)
On the daily chart, the gold prices recently breached its hurdle (yellow downward sloping line); however, the prices were unable to sustain the upper levels and quickly retracted to retest the breakout. The gold prices are presently trading above its psychological level of US$1400, and trading near its short-term support level of approx. US$1425.
However, on a technical front, the 14-days Relative Strength Index is moving downwards, while the gold prices are moving up, which in turn, signifies a bearish signal.
ASX-Listed Gold Miners:
Newcrest Mining Limited (ASX: NCM)
NCM Daily Chart (Source: Thomson Reuters)
On the daily chart, the stock crossed above its resistance level of approx. A$32.78 and is currently taking the support of the same level. On connecting the Fibonacci Series from the projected point marked as 0,1,2 on the chart shown above, it could be seen that the stock is currently moving towards the 61.8 per cent projected level which is at A$34.191. Investors should keep a close eye around the level of A$34.191, as a break above or failure to do so would decide further price actions.
Newcrest leveraged the recent gold rally and appreciated to deliver superior returns over the Gold Spot and the S&P Commodity Producers Gold Total Returns Index on a YTD basis.
NCM, SPCPGT, XAU YTD Returns (Source: Thomson Reuters)
On a YTD basis, NCM delivered a total return of 56.51 per cent, while gold delivered a return of 11.1251 per cent, and the S&P index, which tracks the global gold miners delivered a total return of 34.97 per cent.
Clearly, the returns from NCM outperformed the index and Gold Spot returns, and the higher return from the stock is expected amid additional premium for carrying equity risk; while gold does not contain such risk the return is low, and the S&P index carries diversifiable risks.
Resolute Mining Limited (ASX: RSG)
RSG Daily Chart (Source: Thomson Reuters)
On the daily chart, the stock is clearly leveraging the gold rush in the international market, and the prices crossed its immediate hurdle of approx. A$1.44, which now could act as the support for the share prices.
While compared with the S&P Commodity Producers Gold TR Index and the Gold Spot, the stock outperformed both the benchmark. While in a falling scenario, there are disadvantages of owning a stock, the inverse holds true and stock awards higher premium for carrying additional risk as compared to the underlying asset. However, the fundamentals of a company play an important role; while deciding the direction of price movement over a directional change in the underlying asset.
RSG, SPCPGT, XAU YTD Returns (Source: Thomson Reuters)
RSG delivered a total return of 57.58 per cent on a YTD basis and outperformed the global index and the Gold Spot by a wide margin.
Saracen Mineral Holdings Limited (ASX: SAR)
SAR Daily Chart (Source: Thomson Reuters)
On the daily chart, SAR crossed its hurdle of approx. A$3.977, which is likely to act as near-term support for the stock prices. On projecting the Fibonacci Series from the projected points (0,1,2) on the chart shown above, it could be seen, that the stock is now between the 61.8 per cent, and 100.0 per cent projected level, which could provide further support and resistance to the stock and investors should monitor the movement in the 61.8 per cent to 100.0 per cent projected range.
SAR also delivered superior returns against the S&P Commodity Producers Gold TR and gold spot, and the YTD total returns of the stock stood at 45.051 per cent.
SAR, SPCPGT, XAU YTD Returns (Source: Thomson Reuters)
What investors should be able to fathom until now is the fact that an increase in gold prices support the gold miners as it boosts the P&L in terms of higher sales proceed. But investors should also understand that the company’s operating capacity, management decision or overall fundamentals play a vital role in deciding the future price movement.
One such example is presented by the St Barbara Limited (ASX: SBM)
SBM Daily Chart (Source: Thomson Reuters)
On the daily chart, the prices witnessed a massive gap-down opening in late March 2019, despite the high gold value in the international market. The fundamentals of the company played a significant role, and the prices witnessed a sharp discount.
SBM notified its investors that the company would witness a downgrade in production guidance at its Gwalia Operations, with an increased All-in sustaining cost (AISC), which in turn, exerted the pressure on the share prices of the company.
Thus, such operation discrepancies (or Fundamentals) could lead a gold miner down despite high gold prices. While, the movement in gold prices decide the trend of a gold miner, the fundamentals or the ability of a company to build its balance sheet decides the change in the prices.
On comparing SBM with the Gold Spot and the S&P index, we observed that the stock delivered a negative return on a YTD basis and underperformed the compared index and Gold Spot. SBM delivered a return of -21.155 per cent on a YTD basis.
SBM, SPCPGT, XAU YTD Returns (Source: Thomson Reuters)
Regis Resources Limited (ASX: RRL)
RRL Daily Chart (Source: Thomson Reuters)
On the daily chart, the stock crossed the resistance level of approx. A$5.818, which could now provide support to the share prices. The stock is clearly leveraging the gold prices and is soaring on the daily chart.
As for the price appreciation is concerned, the returns from the stock outperformed the S&P index and Gold Spot on a YTD basis.
RRL, SPCPGT, XAU YTD Returns (Source: Thomson Reuters)
Not just the stocks, the gold-backed ETFs are also witnessing an appreciation in their net asset value and are adding gold to the basket.
As per the data, the SPDR Gold Trust added further 188,657.7 ounces of gold to its holding on 19th July 2019, and now the total gold holdings of the trust stand at 26,379,574.3 ounces (as on 19th July 2019). The holdings of one of the largest gold trusts in the United States- SPDR witnessed a change of over 4 per cent on a YTD basis.
In a nutshell, the gold bull run supported the share prices of the ASX-listed gold miners, and in the current scenario, the gold-backed ETFs are also witnessing higher gold addition and increase in net asset value.
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