Gold — the “fear index” for investors all over the world — is back in the limelight as a range of factors, not least US-led trade wars, stir speculation the yellow metal may soon regain favour.
With a range of US-based analysts suggesting gold prices may have “found a floor” near current levels of around $US1197 — the precious metal has not managed a monthly gain since March.
However, interest in both gold bullion and Australian-based gold miners is rising, with some high profile investors taking positions. Many investors would have expected gold to have already registered a significant lift with wide agreement that share markets are now substantially overvalued, coupled with this week’s downgraded global growth forecast and continuing trade tensions between the US and China.
But a rising US dollar has so far dampened any major turnaround as gold prices traditionally tend to move in the opposite direction to the US dollar.
Nevertheless, despite the absence of the US dollar as a catalyst for gold prices, two other key factors have combined to draw attention to the Australian market — the recent $US18 billion merger of two of the world’s biggest goldminers Barrick and Randgold is expected to trigger
more takeover activity while the reappearance of central banks as buyers is also seen as a key positive signal.
According to the World Gold Council, Central bank buying was at its highest for three years in the first half of 2018. “Normally European central banks sell gold, rather than buy it,” said Macquarie Bank in a recent strategy note. The excitement over the reappearance of European banks was led by Poland making its first purchases in nearly twenty years.
Though central banks may be active buyers once more, retail investors have not been seen in significant numbers yet — when private investors rushed into gold after 2008 — the metal price rose strongly in the wake of the GFC.
So-called gold bugs are also getting enthusiastic as fears of inflation grow in tandem with the rising level of US Treasury yields — gold is seen as a classic “hard asset” and a traditional defence against inflation.
US ten-year treasury yields have moved from around 2 per cent last year to above 3 per cent this year having popped as high as 3.2 per cent in recent days after a jobs report showed US unemployment was at its lowest since the Vietnam War.
Australian gold majors such as Newcrest are now being challenged by a range of smaller stocks that are on the radar of global investors such as Alacer, Northern Star and Regis Resources which all presented at the recent global gold conference in Denver, Colorado. Exchange Traded Funds specialising in gold are also expected to see big inflows if the gold price goes for run.
Meanwhile, local gold miners though struggling throughout most of this year are in the coveted position of regularly spending in Australian dollars but earning in US dollars.
Professional buyers in the gold market are working off forecasts from some of the world’s biggest banks of higher gold prices in the months ahead — both Bank of America Merrill Lynch and Goldman Sachs are predicting a gold price in excess of $US1320 by this time next year. The Australianreported last week the London-based billionaire Michael Hintze has positions in locally listed gold miners Resolute Mining and Ausgold.
Not cross promoting but this has got to bode well for PRU too. Bring it on 2019
PRU Price at posting:
34.5¢ Sentiment: Buy Disclosure: Held
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