US miner Newmont has pitched a second bid inside a matter of weeks at $US29.4bn – the new bid is a substantial lift from $US24.5bn offered in February.
Local gold investors are already enjoying one of the strongest spells for years, as gold – in Australian dollars – is up around 14 per cent over the last year.
As we said right here in December 2022: ‘The big change in relation to gold is that the underlying conditions of sustained inflation and lower growth – not to mention possibility of a recession, are in place.’
You can now add ‘banking instability’ to that list of reasons for gold investment, or as the World Gold Council notes this week: ‘ Investors flocked to gold after March 12 and the collapse of Silicon Valley Bank.’
More broadly, the logic for investing in gold as part of a widely diversified portfolio is there for all to see among top Institutional investors such as the Future Fund, which has been lifting its allocation in recent times.
On the global stage, gold – priced in US dollars – has also finally moved higher after a long period of inertia. In the US gold recently broke its $US2000 record after bouncing 7 per cent inside a month. Nonetheless, compared to prices in Australian dollars, the US dollar lift over the last year has been a very modest 2.5 per cent.
At the time of the first Newmont bid for Newcrest back in February, gold had just started to move higher: In February, it was sitting on a 12-month Australian dollar return of around 6 per cent.
Industry analysts have consistently pointed out that big merger and acquisition activity in the listed gold sector is often a key sign that gold prices are ready to move higher – the Newcrest saga clearly fits the historical pattern that goes back to big bids in the past, such as the takeover of Lihir by Newcrest back in 2010.
Australian investors have four key ways to enter the gold market: Investing directly in bullion: Or Exchange Traded Funds based on bullion: Or investing directly in gold shares: Or Exchange Traded Funds based on shares in gold miner.
The best known gold bullion ETF is Global X GOLD, the best known of the listed gold miner ETFs is the VanEck Gold Miners ETF – the two funds are up around 11 per cent and 14.5 per cent over the last three months.
Newcrest, the biggest listed miner in Australia, will be a key component of any listed gold miners ETF. Meanwhile, its suitor, the biggest gold miner in the world, will similarly take a role in any global ETF: Inside the VanEck Gold Miners ETF, Newmont is the biggest single holding, Newcrest ranks seventh.
Kanish Chugh, at ETF provider Global X says: “We are setting positive inflows into gold over the month to date, but there were negative outflows over the year to date on the back of profit taking.”
Globally, the picture was similar, with the World Gold Council saying there were negative flows across physically backed ETFs in January and February.
The latest Newmont offer is effectively a 16 per cent improvement on the first bid because along with the offering of 0.4 shares for each Newcrest share (it is a scrip based-offer), the Denver-based miner has offered to pay a special dividend of up to $US1.10 a share if the ‘best and final offer’ gets accepted.
Newcrest is trading up by about 5 per cent near $29.75 while the bid now values the company at $32.87.
