Equity Charmer, Gold's 2020 Outlook

Equity Charmer, Gold's 2020 Outlook

With Global fear of recession, continued US-China trade tension and the dwindling interest rate saw the LME gold prices increase by ~22% from 2nd May 2019 USD 1271/ounce to a year high of USD 1551.5/ounce on 9th September 2019. However, post making the year high the gold prices cooled down to USD 1490.2/ounce as of 24th December 2019. The tumbling effect is due to the intermittent optimism toward trade deal post-Chinese efforts for policing intellectual property (IP) theft with stricter penalties and investment, moving investor toward more riskier equity investment resulting gold price drop in November.

However, with the recent statement by US President Donald Trump to wait for a trade deal by 2020, i.e. until the US presidential election and the falling dollar index, has supported the gold prices. Interestingly, gold prices is consolidating and making a potential bullish flag pattern.

Gold Forming Bullish Flag Pattern?

XAUAUD Weekly Chart (Source: Thomson Reuters)

Major gold companies on ASX followed a similar trend as gold commodity price except gold-backed ETF’s, which has shown an almost consistent unit price as exhibited below.

Comparison of S&P/ASX All Ordinaries Gold (Sub Industry) and ETFs Metal Securities Australia Ltd (physical metal gold): -

Source: Australian Stock Exchange

The rise in commodity price has dwindled the gold market - jewellery demand coming from India and China fell by 16% to 460.9t in Q3 2019. However, the global central banks went on a buying spree this year with the gold purchases increasing to 374 tons in H12019 as against 238 tons in H12018 a jump of ~57.14%, and inflows of gold ETF which has marked $1b milestone on the Australian Stock Exchange outweighs the fall in jewellery demand.

Accommodative monetary policy, dwindling bond returns, increase negative debt yield alongside high stock to yield valuation has rendered gold more attractive and diversified than bonds.

P/E stock valuation relative to interest rate (CAPE/LTyield)


Source: World Gold Council, Robert Schiller and Federal Reserves

Global investors are facing higher risk with lower return due to flat or negative US treasury real yield curve - indicating an impending recession, higher P/E stock valuations relative to the interest rate. Also, as discussed trade tensions along with the Middle East and Brexit turmoil leading to the movement toward the haven investment like gold.

Gold does not provide ROI in the form of interest or dividend, which is the primary motive behind any investment. The lack of yield may daunt the investors but given the present environment condition where the 26% of developed market sovereign debt is trading with (-) nominal rates and a massive 82% trades with (-) real rates once adjusted for inflation.

Having said that, distinct forms of ETFs such as physical backed gold, physical backed gold including currency hedge or investing in the gold miners’ company, becomes a more prevalent mode of investment. Investing in ETFs is better than solely investing in gold or gold mining company as it can be liquidated easily, can be shielded against different economic factors and diversified stocks of the company. Various ETFs in Australia are: -

· VanEck Vectors Gold Miners ETF (ASX: GDX) gives the option of a diversified portfolio of gold mining companies to the investors. The share price settled at AUD 40.57 on 24th December 2019 with 52-week high and low as AUD 45.67 and AUD 28.02 respectively.

· BetaShares Global Gold Miners ETF - Currency Hedged (ASX: MNRS) provides transparent exposure to the largest global gold miners to the investor in a more straightforward and cost-effective mean. It is also hedged into Australian dollar. The share price settled at AUD 5.11 on 24th December 2019 with 52-week high and low as AUD 5.33 and AUD 3.38 respectively.

· BetaShares Gold Bullion ETF – AU Hedged (ASX: QAU) tracks the performance of gold bullion, hedged into Australian dollar shielding against USD and AUD fluctuation. The share price settled at AUD 14.97 on 24th December 2019 with 52-week high and low as AUD 15.75 and AUD 12.64 respectively. It has an EPS of AUD 1.481 and P/E of 10.11.

· Perth Mint Gold (ASX: PMGOLD) is the Government-backed gold which can be purchased by the investors via the Australian Securities Exchange (ASX). The share price settles at AUD 21.57 on 24th December 2019 with 52-week high and low as AUD 23.1 and AUD 17 respectively.

· ETFS Physical Gold (ASX: GOLD) is one of the five metal securities of ETFS Metal Securities Australia Limited, designed to track the price of precious metals gold, silver, platinum, palladium and the basket of the precious metal price (gold, silver, platinum and palladium). The other four security names are: -

o ETFS Physical Silver (ASX: ETPMAG),

o ETFS Physical Palladium (ASX: ETPMPD)

o ETFS Physical Platinum (ASX: ETPMPT) and

o ETFS Physical PM Basket (ASX: ETPMPM)

The share price settled at AUD 202.13 on 24th December 2019 with 52-week high and low as AUD 204.9 and AUD 126.890 respectively. It has EPS of AUD 0.632 and P/E of 319.98.

Three Top ASX Gold Miners:

· AngloGold Ashanti (ASX:AGG) is positive toward increasing margin between AISC (All-in sustaining cost), and an average gold price realised. The benefit has improved with a cumulative growth rate of 16.77% from 23% in Q1 2019 to 30% in Q3 2019. Enhanced margin has resulted in an improved portfolio, strong liquidity with enhanced leverage, and exploration for reserves growth.

The share price settled at AUD 6.07 on 24th December 2019 with 52-week high and low as AUD 7.28 and AUD 3.22 respectively. It has EPS of AUD 0.06 and P/E of 100.66.

· Regis Resources Limited (ASX:RRL) too expecting substantial margin, good AISC and steady production growth. Regis currently selling into Spot Deferred Hedges at a rate of approximately 10 koz per quarter of total hedge position of ~445koz at an average of A$1,613/US$1,129/oz is the testimony of better outlook company expected in future.

The share price settled at AUD 4.19 on 24th December 2019 with 52-week high and low as AUD 6.72 and AUD 4.005 respectively. It has EPS of AUD 0.322 and P/E of 13.02.

· Northern Star Resources Limited (ASX:NST) significantly leverages the present gold prices to maximise shareholder value creation. For the same NST has signed an agreement to purchase 50% stake in Kalgoorlie Consolidated Gold Mines (KCGM) owned by Newmont Goldcorp Australia for $800m. The acquisition is expected to improve the EV/Reserve, EV/Resource, P/NAV multiples along with earnings per share of the company in FY21. Also, the whopping commitment of around AUD 76 Million is planned for exploration and drilling.
However, to be on safer side the company has hedged the risk of volatility of the gold price as shown below:


Source: Company’s September ended Quarterly Report

The share price settled at AUD 10.79 on 24th December 2019 with 52-week high and low as AUD 14.055 and AUD 7.85 respectively. It has EPS of AUD 0.244 and P/E of 44.22.

Parallel to the above viewpoint, Newmont Barrick Gold has assumed the future price in the range of USD 1300 – USD 1600/oz, to predict the free cash flow per year concerning Gold price. Throughout the sensitivity analysis, the company has return robust free cash flow to reduce the debt and return capital to shareholders.

Good Read: Gold Signals Positive Upcoming Trend- Western Australia’s Large Gold Discoveries to Benefit?

Gold is expected to remain the valuable strategic asset in 2020 courtesy to the uncertain financial market, accommodative monetary policy, weaker economic growth, return instability due to reassessment of investments based on continuously changing information, shifting focus on US-China trade deal until next year and market uncertainty over US Presidential election in 2020. Also, the economic expansion from the growth of technology, jewellery and long-term savings plan etc. are expected to maintain the gold demand and price in the coming future.

However, with a positive outlook, ambiguity remains for gold commodity. There is a possibility of the tumbling of gold price after easement of the market, and the optimistic trade deal between US-China post US Presidential election. Also, due to the dollar devaluation as witnessed a few weeks back, President Trump plans to reimpose tariffs on steel and aluminum imports from Brazil and Argentina, citing the massive weakening of the USD may dwindle the gold price. In the milieu of which gold companies are hedging the price risk to continue the planned strategy.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

XAUAUD Weekly Chart (Source: Thomson Reuters)

Major gold companies on ASX followed a similar trend as gold commodity price except gold-backed ETF’s, which has shown an almost consistent unit price as exhibited below.

Comparison of S&P/ASX All Ordinaries Gold (Sub Industry) and ETFs Metal Securities Australia Ltd (physical metal gold): -

Source: Australian Stock Exchange

The rise in commodity price has dwindled the gold market - jewellery demand coming from India and China fell by 16% to 460.9t in Q3 2019. However, the global central banks went on a buying spree this year with the gold purchases increasing to 374 tons in H12019 as against 238 tons in H12018 a jump of ~57.14%, and inflows of gold ETF which has marked $1b milestone on the Australian Stock Exchange outweighs the fall in jewellery demand.

Accommodative monetary policy, dwindling bond returns, increase negative debt yield alongside high stock to yield valuation has rendered gold more attractive and diversified than bonds.

P/E stock valuation relative to interest rate (CAPE/LTyield)


Source: World Gold Council, Robert Schiller and Federal Reserves

Global investors are facing higher risk with lower return due to flat or negative US treasury real yield curve - indicating an impending recession, higher P/E stock valuations relative to the interest rate. Also, as discussed trade tensions along with the Middle East and Brexit turmoil leading to the movement toward the haven investment like gold.

Gold does not provide ROI in the form of interest or dividend, which is the primary motive behind any investment. The lack of yield may daunt the investors but given the present environment condition where the 26% of developed market sovereign debt is trading with (-) nominal rates and a massive 82% trades with (-) real rates once adjusted for inflation.

Having said that, distinct forms of ETFs such as physical backed gold, physical backed gold including currency hedge or investing in the gold miners’ company, becomes a more prevalent mode of investment. Investing in ETFs is better than solely investing in gold or gold mining company as it can be liquidated easily, can be shielded against different economic factors and diversified stocks of the company. Various ETFs in Australia are: -

· VanEck Vectors Gold Miners ETF (ASX: GDX) gives the option of a diversified portfolio of gold mining companies to the investors. The share price settled at AUD 40.57 on 24th December 2019 with 52-week high and low as AUD 45.67 and AUD 28.02 respectively.

· BetaShares Global Gold Miners ETF - Currency Hedged (ASX: MNRS) provides transparent exposure to the largest global gold miners to the investor in a more straightforward and cost-effective mean. It is also hedged into Australian dollar. The share price settled at AUD 5.11 on 24th December 2019 with 52-week high and low as AUD 5.33 and AUD 3.38 respectively.

· BetaShares Gold Bullion ETF – AU Hedged (ASX: QAU) tracks the performance of gold bullion, hedged into Australian dollar shielding against USD and AUD fluctuation. The share price settled at AUD 14.97 on 24th December 2019 with 52-week high and low as AUD 15.75 and AUD 12.64 respectively. It has an EPS of AUD 1.481 and P/E of 10.11.

· Perth Mint Gold (ASX: PMGOLD) is the Government-backed gold which can be purchased by the investors via the Australian Securities Exchange (ASX). The share price settles at AUD 21.57 on 24th December 2019 with 52-week high and low as AUD 23.1 and AUD 17 respectively.

· ETFS Physical Gold (ASX: GOLD) is one of the five metal securities of ETFS Metal Securities Australia Limited, designed to track the price of precious metals gold, silver, platinum, palladium and the basket of the precious metal price (gold, silver, platinum and palladium). The other four security names are: -

o ETFS Physical Silver (ASX: ETPMAG),

o ETFS Physical Palladium (ASX: ETPMPD)

o ETFS Physical Platinum (ASX: ETPMPT) and

o ETFS Physical PM Basket (ASX: ETPMPM)

The share price settled at AUD 202.13 on 24th December 2019 with 52-week high and low as AUD 204.9 and AUD 126.890 respectively. It has EPS of AUD 0.632 and P/E of 319.98.

Three Top ASX Gold Miners:

· AngloGold Ashanti (ASX:AGG) is positive toward increasing margin between AISC (All-in sustaining cost), and an average gold price realised. The benefit has improved with a cumulative growth rate of 16.77% from 23% in Q1 2019 to 30% in Q3 2019. Enhanced margin has resulted in an improved portfolio, strong liquidity with enhanced leverage, and exploration for reserves growth.

The share price settled at AUD 6.07 on 24th December 2019 with 52-week high and low as AUD 7.28 and AUD 3.22 respectively. It has EPS of AUD 0.06 and P/E of 100.66.

· Regis Resources Limited (ASX:RRL) too expecting substantial margin, good AISC and steady production growth. Regis currently selling into Spot Deferred Hedges at a rate of approximately 10 koz per quarter of total hedge position of ~445koz at an average of A$1,613/US$1,129/oz is the testimony of better outlook company expected in future.

The share price settled at AUD 4.19 on 24th December 2019 with 52-week high and low as AUD 6.72 and AUD 4.005 respectively. It has EPS of AUD 0.322 and P/E of 13.02.

· Northern Star Resources Limited (ASX:NST) significantly leverages the present gold prices to maximise shareholder value creation. For the same NST has signed an agreement to purchase 50% stake in Kalgoorlie Consolidated Gold Mines (KCGM) owned by Newmont Goldcorp Australia for $800m. The acquisition is expected to improve the EV/Reserve, EV/Resource, P/NAV multiples along with earnings per share of the company in FY21. Also, the whopping commitment of around AUD 76 Million is planned for exploration and drilling.
However, to be on safer side the company has hedged the risk of volatility of the gold price as shown below:


Source: Company’s September ended Quarterly Report

The share price settled at AUD 10.79 on 24th December 2019 with 52-week high and low as AUD 14.055 and AUD 7.85 respectively. It has EPS of AUD 0.244 and P/E of 44.22.

Parallel to the above viewpoint, Newmont Barrick Gold has assumed the future price in the range of USD 1300 – USD 1600/oz, to predict the free cash flow per year concerning Gold price. Throughout the sensitivity analysis, the company has return robust free cash flow to reduce the debt and return capital to shareholders.

Good Read: Gold Signals Positive Upcoming Trend- Western Australia’s Large Gold Discoveries to Benefit?

Gold is expected to remain the valuable strategic asset in 2020 courtesy to the uncertain financial market, accommodative monetary policy, weaker economic growth, return instability due to reassessment of investments based on continuously changing information, shifting focus on US-China trade deal until next year and market uncertainty over US Presidential election in 2020. Also, the economic expansion from the growth of technology, jewellery and long-term savings plan etc. are expected to maintain the gold demand and price in the coming future.

However, with a positive outlook, ambiguity remains for gold commodity. There is a possibility of the tumbling of gold price after easement of the market, and the optimistic trade deal between US-China post US Presidential election. Also, due to the dollar devaluation as witnessed a few weeks back, President Trump plans to reimpose tariffs on steel and aluminum imports from Brazil and Argentina, citing the massive weakening of the USD may dwindle the gold price. In the milieu of which gold companies are hedging the price risk to continue the planned strategy.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

-->

 

All pictures are copyright to their respective owner(s).Kalkinemedia.com does not claim ownership of any of the pictures displayed on this website unless stated otherwise. Some of the images used on this website are taken from the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

CLICK HERE FOR YOUR FREE REPORT!
   
x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK