Monsters of Rock: Can gold miners finally capitalise on a boom?

Gold prices sit at six month highs, upwards of US$2000/oz
Aussie gold equities have risen 15% since the week before Hamas’ attack in Israel
Fundamentals suggest gold could be on the edge of a breakout or bear market, depending how the cookie crumbles

You may not register it right now, but gold prices are tantalisingly close to all time highs.

When prices hit the current record of US$2075/oz back in August 2020, the mood was exuberant.

Post-COVID inflation and open borders had yet to hit bullion producers’ costs, cash was cheap and predictions that a wild and unpredictable world could send prices still higher captured the imagination of investors.

A few years down the line and investors are into battery metals and contrarian bets on things like energy. Gold’s a bit ho-hum.

But gold — the commodity — is pretty impressive. The new war bump and hopes of an end to the US Fed’s rate hike cycle are keeping prices high, currently fetching US$2013.70/oz.

Up 2.03% today, the All Ords gold sub-index is up a touch over 15% since hitting a six month low in the week leading up to Hamas’ attack on Israel.

Price has been a major factor, although production reports from Aussie miners were also generally solid for the September quarter, with the rolloff of out of the money hedges for many stocks leading to improved cash flow.

The materials sector was up only 0.34% this arvo after promising stronger gains in morning trade.

That meant strong outperformance from the gold sector, led by one of those hedge screwed mid-tiers in Regis Resources (ASX:RRL), which rose 5.01%.

Emerald Resources (ASX:EMR), operator of the Okvau gold mine in Cambodia ran up 4.82%, while Red 5 (ASX:RED), Northern Star (ASX:NST) and Evolution (ASX:EVN) all rose strongly.

Up over 3% as well was Perseus Mining (ASX:PRU), which gained 3% a day after buying into a 19.9% blocking stake in Tanzanian gold developer OreCorp (ASX:ORR), further muddying the waters of its proposed takeover by Canadian listed SilverCorp Metals.

Gold miners share prices today:

Can they go higher?

With gold at six month highs, can this be the time gold finally stays above US$2000/oz after four or five false starts in the past three years?

FxPro senior market analyst Alex Kuptsikevich called the recent trading in fold “an immaculate execution of the Fibonacci pattern”, which long story short shows a potential move to $2130/oz could in a technical sense be on the cards in a breakout scenario.

But “gold will need strong tailwinds to realise such a bullish scenario”, Kuptsikevich said.

“And there could be problems with that. A robust US economy and a worrisome geopolitical environment have kept interest in gold alive, as has pressure in US debt markets,” he said.

“For investors, government bonds look more attractive than gold because they yield, and at one point, they were down 50% from their peak.”

There are also questions to ask about whether reserve bank buyers like China and Saudi Arabia will remain net buyers after two years of massive central bank purchasing.

“The long-term picture also points to the formation of a triple top in gold – a reversal pattern. However, its legitimacy is now in doubt amid the rapid upward reversal since the beginning of October,” Kuptsikevich said.

“In any case, the dynamics of gold in the coming days promise to be trend-defining for many months ahead, as we may see either a breakout of long-term and psychologically important resistance or the beginning of a multi-month or even multi-year bear market.”