Barry FitzGerald: The Klein case for gold bulls, in five Ds
Experts
Experts
The ASX gold sector should be pumping in response to near-record gold prices.
But it is not.
In fact, it is down in the mouth because investors have gone chasing lithium, rare earths, nickel, copper and any other metal with “critical’’ credentials.
What the gold sector needs to claw back some attention is an almighty surge in the gold price, one that leaves the record $US$2,075/oz set during the pandemic in its wake.
As mentioned, the current price ($US1,960/oz mid-week) is not bad anyway as it is well ahead of the 2021 average of $US1,799/oz and the 2022 average of $US1,802/oz.
And its recovery from $US1,625/oz at the end of September last year is why leading gold stocks have been strong performers.
But they want more, and they want the love and attention the critical metals stocks have been receiving.
The gold bugs out there will be delighted to know then that one of Australia’s most experienced gold industry men, Evolution executive chair Jake Klein, reckons gold’s time to shine is upon us.
Klein said during the week that the current price, particularly in Aussie dollars, was impressive all right.
“(But) there are compelling reasons to believe that the gold price will be much higher in the future.’’
He has a better than average feel for what drives the gold price, and in a career spanning more than 30 years, the former Macquarie banker has created not one but two big gold companies.
The first was Sino Gold, which as it names suggests, was a producer in China. It traded on the ASX until 2009 when it was taken over by a Canadian company for $2.2 billion.
Klein then founded Evolution in 2011 which now has a market cap of $6.5 billion. Thanks to Newcrest disappearing soon, it will become the second biggest gold producer on the ASX behind Northern Star.
Anyway, Klein fronted investors on Monday to talk about Evolution’s operations and outlook. He devoted a big chunk of his investor chat to talking up the gold price.
While he could be accused of talking his own book, the reasons why he thinks gold is poised for a record-breaking run made sense.
Klein summarised his bull story for gold as the five “Ds’’ – debt defaults, the US debt ceiling, dedollarisation, destabilisation and decarbonisation.
“The first three reflect the global financial risks, and the last two reflect a global realignment we can all agree is well underway,’’ Klein said.
A replay of what Klein said can be found on Evolution’s website. But here is the gist of his thoughts.
Debt defaults: US interest rate hikes (and elsewhere) are clearly causing stress in the financial system. In the last couple of months three US banks had to be rescued. In terms of scale, they were bigger than all of the banks that failed in the GFC.
Debt ceiling: While the issue was resolved, it needs to be remembered that US debt stands at $US31 trillion and is growing by $US100m an hour. Klein said the country’s finances are on increasingly precarious ground.
Dedollarisation: Not sure it is a real word. It goes to the US dollar’s status as the world’s reserve currency.
“We are entering the early stages of what has been a Chinese government ambition for the last 25 years – a formidable challenge to the US dollar,’’ Klein said.
Other countries (think Russia among others) harbour the same ambition.
“The US dollar is under attack and that is not going away – and it will reshape financial markets of the future.’’
Destabilisation/Decarbonisation: Countries, customers and consumers around the world are at the start of a massive wave of spending to make decarbonisation happen. It is essentially an arms race with a $US125 trillion bill which will only add to the inflationary pressures around the globe.