This one from Arion Neiron, head of Asia Pacific at Van Eck, in the AFR today has some nice quotes which I highlighted in yellow (an effort to make me remember them even if I don’t), but even more usefully it finishes with some good ‘homespun’ advice on how ‘timing the market’ is crucial to making profitable investments, and reminding gold miners are still comparatively undervalued.….
…. what about gold explorers in the Dalgaranga area of Western Australia?
Cheers to a good week ahead (Melbourne Cup, US Election AND the Spartan AGM!!!) …and maybe some positive news to sweeten the AGM.
cheers
“We have Spartan because this company is well governed and achieving good things for us”.
https://www.afr. com/markets/commodities/here-s-why-gold-has-so-much-further-to-run-20241029-p5kme6 Here’s why gold has so much further to run
Gold has already run 30 per cent this year to record levels, but there is still one ingredient missing that has been evident in previous bull markets which could propel prices higher.
“Gold is money. Everything else is credit,” said John Pierpont Morgan. This is actually a famous misquote.
What the head of the US bank that later became known as JPMorgan actually said was that when speaking about credit it “is an evidence of banking, but it is not the money itself. Money is gold, and nothing else.”
At the time, Morgan was testifying before the US House of Representatives in 1912 which was investigating the concentration and control of money after the “Panic” of 1907, when the sharemarket plunged 50 per cent from its peak the previous year.
The gold price has already run 30 per cent this year. Trevor Collens
The so-called Pujo hearings led to the reincarnation of the US Federal Reserve in 1913 when the Federal Reserve Act was passed. Since then, for the most part, the price of gold and Fed policy have been intertwined.
One notable “break” was when the Fed started raising rates in March 2022. When the Fed hikes rates it typically batters the price of bullion because investors flock to higher-yielding bonds rather than gold which has no yield. The gold price, however, continued to rise as the Fed fought inflation.
Now that rates are falling, the gold price is gaining even more momentum after an already stellar 30 per cent run so far this year.
And there are many reasons why it will keep climbing. Its momentum has been supported by pressure on the US dollar, rate cuts, geopolitical uncertainty, under-ownership and central banks buying up.
In the past, during periods of economic deterioration or a rapid weakening of the US dollar, gold is often viewed as the preferred store of value. Pressure on the greenback will remain as the Fed looks to cut rates further, and US debt hits unprecedented levels.
A lower rates environment and stubborn inflation has led to falling real yields.
Should real yields, which are net of inflation, turn negative, gold could become attractive as a hedge against the economic uncertainty.
US government debt has been a key issue of the election, and it has not been about reining it in. Rather, it’s about which candidate will add the most to government debt. Regardless of the outcome, US government debt will get worse.
Geopolitical tensions
Outside the US, the global environment is marked by geopolitical tensions and economic volatility. Gold is viewed as a safe haven during such times, having historically provided stability when other assets may have faltered. Through all of this there has also been strong structural demand for gold from central banks, particularly in the emerging markets such as China, Turkey and India.
But what has been absent from this recent rally, that was evident in previous gold bull markets, could see its price propel even higher. That is investor demand from the asset owners in the West.
For as long as there have been gold bullion ETFs, there has been an almost perfect correlation between the ETF holdings and the gold price. The gold price rose as demand for gold-backed ETFs went up, and vice versa.
That was until 2022. Since then, investor demand for gold bullion ETFs has been on the decline as Western investors stay on the side-lines. When they come back – and we think are – the rally in the gold price could accelerate.
On a recent trip through Asia, many asset owners indicated that they were looking to invest, or increase their investment in gold, for all the reasons noted above as well as others. Gold bullion ETFs in Asia have experienced an increase in demand, particularly in the past three to six months.
Miners undervalued
With most other risk assets such as stocks being fully priced, a $US3000 gold price – which UBS recently flagged is a possibility by the end of the year – could not only provide investors with potential growth but also a hedge against debt and geopolitical uncertainty.
In a recent VanEck Australian Investor Survey, over one in five investors indicated they were considering an allocation to gold and gold equities in the next 12 months. This is a step-up change from the year before by 31 per cent. We would caution that investing in gold should be like investing in other asset classes. Timing the market may be a fool’s game. Once investors have decided to invest, they should also consider how to gain that exposure.
What is unique about gold is that you can gain exposure via the sharemarket.
Gold stocks, while more volatile than the price of the yellow metal, typically rise more on the ascent. The reverse is also true when the gold price falls.
But during the recent gold price rally, miners for the most part, have lagged.
The gold mining sector is undervalued. Sure, costs to produce gold have climbed with inflation, but they have risen to about $US1400 per ounce. Newmont recently reported $US1613 per ounce for the latest quarter which reinforces that taking a sector approach versus individual miners is prudent.
So with the gold price approaching double that, the miners are well placed to benefit and that has not yet been fully reflected in valuations.
With the world seemingly in a state of flux, gold is being used as a hedge against US dollar weakness, inflation, central bank mismanagement, rising debts and geopolitical uncertainty.
So as we await the imminent and uncertain outcome of the 60th US presidential election, we are reminded of the words of the 31st US president, Herbert Hoover: “We have gold because we cannot trust government.”
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