ASX small cap gold stocks are up 20 per cent in 6 months — will the run continue?

It’s been a magical few months for gold stocks on the ASX. While some have seen more exploration success than others there’s no doubt what the catalyst was for the entire sector’s performance.

The spot gold price hit A$2000 on June 21 and has continued to rise. As at 12.30pm yesterday it was $2171.

As a result, the 134 ASX small cap gold stocks have gained an average 20 per cent in six months. While not all stocks have enjoyed the gains of the commodity price, the majority of companies have.

But will it continue?

Analysts think gold will continue to rise into 2020. There are two reasons why.

First, its perception as a safe haven in the context of an uncertain economic outlook and low interest rates.

Last month at the Exchange SA conference Magellan Asset Management’s Emma Kirk said she believed low interest rates would persist for some time.

While she did not specifically mention gold, she said investing in mega-trends that will happen regardless of the economy was the best bet to create value

Furthermore, the geopolitical and trade tensions are unlikely to disappear any time soon and while much of the once immortal tech sector has suffered, gold has not.

Second is demand for gold in consumer market — particularly jewellery which accounts for 52 per cent of gold demand. Physical gold holding is the next largest source of demand accounting for one third.

Bloomberg analyst Eily Ong said earlier this week, “We see official gold holdings rising this year, particularly in emerging markets, as appetite will likely keep recovering.

“The industrial-gold-applications buying trend should also be sustained through 2020, as consumption in electronics and decorative use improves, particularly if there’s any metal-price weakness on dollar appreciation.”

But don’t forget project fundamentals

Ultimately the gold has to come from somewhere, and just because gold is in the ground, it doesn’t mean it can be recovered.

S&P analyst Jarrett Bilous said unfriendly governments could be a threat. While everyone associates Tanzania’s regulatory issues with the graphite sector, the catalyst was gold miner Barrick.