I leave gold stock holders to ponder over what happened in Sept...

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    I leave gold stock holders to ponder over what happened in Sept so far.

    Since the start of this month, US gold has retraced almost 6pc but if you look at AUD Gold it is now exactly where it was at the start of the month, which is why I indicated yesterday that the sell off in gold stocks was overdone and true to form the XGD moved higher by 2.6pc today which still leaves it almost 1pc lower than at the beginning of the month. All that happened in Sept was that the USD experienced a rebound from an oversold position and which received its boost from an equities sell off contributed to a large degree by the stimulus stalemate in US Congress.

    The stimulus measure whether 2T or some measure lower will eventually pass either before or after election but it will pass, unless you are entirely convinced that there would be no more stimulus no more money printing, you can't believe this USD rally is nothing more than temporary because of the stalemate, notice than once rumours are out for a Pelosi Mnuchin negotiation the USD did start to fall back.

    But as stated earlier , only an erosion of AUD gold price will impact adversely on Aussie gold producers revenues and then only to a degree to which they have not hedged their gold position. And as for Gold juniors, it is even better , their tenement value is only impacted by future price of gold when their production begins and for most that won't be until late 2021 OR 2022 and beyond so short and medium term price movements in the relic has absolute no effect on tenement valuation. Secondly most of local Aussie gold explorers can produce gold at AISC circa A$1200-1400 And A$ gold is still high at A$2600 ; even if US gold scales to e.g. at extreme short term low of $1700 And May low A$ gold would be around A$2400, at that price there is still a 50pc margin , I highlighted before that CAI DFS showed a post tax NPV at A$300m at A$2500 while CAI is today trading at less than half of that NPV even at current A$2600+. So in reality the juniors will only get higher in valuation as they progressively March towards development and construction and as they continue to upgrade their reserves. Take a gold junior that has established reserves but has yet to complete PFS, their current valuation remains substantially lower than their prospective value than when their PFS eventually reveal their NPV outcomes at prices considered to be commercially viable, that price should be at least circa A$1800. And the bigger their reserves and grade, their NPV outlook would be at much higher multiples than their present valuation if they are still in the low market cap of 20 to 100m , which is why I like gold juniors like WWI, OAR, FFR, KZR, EQE, MXR as they have key cornerstone investors who have done their due diligence and they are located in known gold mineralised regions in close proximity to established gold producing tenements.

    The above illustrates why gold juniors should not be marked down unless we see a significant downward shift in the AUD gold price and gold going lower even when the USD is not moving higher. Buying promising gold juniors is IMO prospective in view of the held belief that beyond this short term hiccup we will be seeing more stimulus and gold prices will rebound but more importantly their tenement valuation would largely depend on their mineralogy prospects more so than short term price fluctuations , the latter of which explained the re rate observed with CHN DEG and FFR amongst others. And for the many undiscovered gems, the beauty is that their valuation underrates and undervalued the true potential they hold.

    And this is precisely what I look for in companies, finding true gems whose valuation has yet to reflect their true underlying potential , and of course the biggest gains are found in small cap under the radar minnows but which have sufficient data to validate their long term potential. Investing with such approach clearly requires taking an initial measured position at an early stage and riding the wave up as it begins to show traction, and if for any reason traction is not forthcoming then you know the time is up regardless of what the price does.
 
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