Currencies & Commodities Industry Sectors
Are gold companies about to glister?
17 Nov 2021
6 month(s) ago
Surging inflation is traditionally good for producers of the yellow stuff.
As inflation gains pace in world markets, there is likely to be a lot of focus on gold, and gold companies. Whereas gold is a purely defensive monetary play – one investment play on the ASX is Perth Mint, or PMGold – there is no income from it. Gold companies can provide dividend income, and, if they are well managed and successful a lot of share price growth. Of course, the opposite can apply, too.
Macquarie is arguing that there are three themes affecting the price, only one of which is inflation:
Inflation: Rising risks of an inflationary surge with the Fed and other major central banks unwilling or unable to keep inflation expectations anchored. Consequent sharp decline in real rates and boost to gold prices.
Growth: US and global economy unable to withstand even a small rise in policy rates. US rates face something akin to Japanification, structurally underpinning gold.
Yield curve: Long end yields move higher and the Fed is able to follow tapering with incremental rate hikes, as the economy looks increasingly late cycle. Gold falls but bases out a relatively high level.
These are Macquarie's top Australian picks, with the established producers obviously lower risk:
“Established producers: Northern Star Resources (organic growth), Silver Lake Resources (organic growth) and Perseus Mining (production step-up). ?
Juniors: Aurelia Metals (exploration and growth), Bellevue Gold (exploration/development potential).”
Interestingly, gold has underperformed silver over the last year or so:
Macquarie is expecting the $A gold price to go sideways:
If the threat of inflation, now at its highest level in the US since 1990, at 6.2 per cent, then things could get ugly, which in theory should be good for the gold price and gold companies.
There are, though, new players: cryptocurrencies. The sharp rise in Bitcoin does suggest that there are other defensive diversification plays available, although what that means long term is far from clear.
Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice. It does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. For more information please read our disclosure statement.