Next year set to start same way this one ended – with gold stocks shining amid the gloom

21st December 2018
Tim Treadgold

Gold sent a powerful message to investors this week and it’s one that will be carried into next year: it is outperforming every other asset class and as economic storms threaten, it will continue outperforming.

The simplest test of gold’s strength in a week when the US tightened the interest rate screws and global growth struggled is the ASX gold index, which rose by 3.1%, spanking the all ordinaries, which fell by 2.8%.

Over the past 12-months the gap is even wider, with the gold index up by 9.4% and the all ordinaries down by 9%.

This week’s gold-index increase could be sheeted home to the performance of a number of stocks such as Northern Star, which added 64c (8.2%) to $8.63, and St Barbara, up 19c (5.8%) to $4.48. But credit is shared with the Australian dollar which lost US1c to deliver a rise of $A25 an ounce to the local gold price, which ratcheted up to $A1754/oz.

Gold on the international market also performed well despite a rise of 0.25% in the federal funds rate of the US central bank to 2.5%. But with that increase came a hint that while the rate-rising cycle isn’t over, the next rise could be further away than previously expected.

While some analysts had expected gold to be sold off in the face of the latest rate rise, it actually rose by $US6/oz over the course of the week to $1245/oz, even after a $US16/oz fall immediately after the rate hike was announced.

Apart from the prospect of the rate cycle drawing to a close sometime around the middle of next year, an event which should further boost gold, there are darkening comments about the outlook for the world’s economy, which is being battered by the trade war, and disturbing chatter about the banking system suffering a “heart attack” as it did in August, 2007.

All this makes for an unhappy picture as 2018 grinds to a close and investors get ready for 2019, most with a view of hoping for the best and planning for the worst as political events, such as Brexit and the Australian federal election, mesh unhappily with the economic outlook.

All roads might one day have led to Rome but it’s hard to ignore the multiple pressures pointing investors towards the Australian gold sector. which is enjoying a potent mix of a rising gold price, strong production numbers, increasing profits and a flow of excellent exploration news.

Apart from all that, the trends in gold add a splash of optimism to this final edition of Prospector’s Diary for 2018, which has to be better than banging on about the negatives, which are all too obvious.

News events and share price moves of note over the past five days, with a focus on the gold sector, included:

  • Northern Star, which posted that strong price rise over the week mentioned earlier thanks to a cluster of superb drilling results that included 4.4 metres at an eye-popping 671 grams of gold a tonne (21.5 ounces) in the Kanowna Belle mine and 1.8m at 80.4g/t from the Kundana mine.
  • Dacian Gold reported a maiden reserve of 45,000 ounces of gold in the Cameron Well area of its Mt Morgans project in WA, and a 16% increased in the overall reserve to 1.39 million ounces, lifting the stock by 15c to $2.15 with the reserves increase enough for Macquarie Bank to tip a future price of $3.
  • Independence slipped 20c lower to $3.67 despite announcing the positive outcome of a pre-feasibility study into an underground phase at its Tropicana goldmine in WA.
  • Newcrest added 17c to $20.87 after reporting that it had increased its stake in SolGold, an Australian run but London-listed explorer with a foot on what looks like a big gold and copper discovery in Ecuador. Surprisingly, SolGold lost ground with a fall of around one-third of a penny to 36.85p.
  • Explaurum added 1c to 12c after agreeing to a takeover offer from Ramelius, which did the opposite as is often the case in mergers, shedding 4c to 40c.
  • Kirkland Lake, one of the stars of the gold sector this year, ran out of puff this week, losing $1.24 to $33.63, partly because of a dividend payment and not that most investors would mind as the stock is still up $10 on this time last year.
  • Moho Resources, the comeback gold vehicle of Terry Streeter, added 2c to 14c after releasing a set of positive drill results from its East Samson Dam project in WA with a best hit of 1m at 7.02g/t from a depth of 8m and 2m at 12.8g/t from 48m.
  • Mincor led the nickel sector higher with a 3c rise to 36c after reporting high-grade drill results from its Cassini mine, including 7.17m at 11.49% nickel from a depth of 457.06m.
  • Panoramic also moved higher with a 1c gain to 38c despite a weak nickel price, but aided by a positive research report from Macquarie Bank which initiated coverage of the stock with a buy tip and price forecast of 70c as the Savannah mine in WA returns to production.
  • Nickel Mines, an ASX-listed stock developing a low-grade limonite project in Indonesia to feed a new processing plant in that country, also moved up by 1c to 25c.
  • Lithium stocks had a rough week as reports of reduced prices for the key battery metal circulate with Kidman Resources diving 43c lower to $1.01. Pilbara weakening by 12c to 64c and Altura losing 3c to 16c.
  • Aeon Metals resumed its rise with a 3c gain to 27c after reporting encouraging drill results from its Walford Creek copper and cobalt project in Queensland with a best intersection over 10m grading 1.14% copper and 0.18% cobalt from a depth of 322m.
  • Coal stocks, despite their poor political image, remained on the buy list of a number of stockbrokers with Wilsons putting buy tips on four; Whitehaven, Stanmore, New Hope and Bounty. Unfortunately, Whitehaven dropped by 44c to $4.19, well below Wilsons price tip of $5.80 and Stanmore slipped 6c lower to $1 with Wilsons forecasting a rise to $1.40, and
  • Iluka, a big titanium minerals miner, lost 16c as it eased back to $7.26, but if Baillieu, a Melbourne stockbroking firm, is right, the stock could be heading back to $11.60 on strong production news expected in the first six months of next year.

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