Just before Christmas the gold price shot up over $1800 an ounce in Aussie dollar terms, a price not seen for 18 months.
And according to experts, this is great news for not just the big producers – finally, junior producers and explorers could also have their time in the sun.
“With Aussie dollar gold above $1800, a lot of Aussie gold miners are going to be making very, very good money,” precious metals analyst Jordan Eliseo told Stockhead.
“I think that over the last year it’s probably been the mid-tiers and larger producers that have performed best share price-wise, but I think as this gold bull market gets more entrenched, you’re going to see capital move down to the juniors and even to some of the explorers.
“Provided investors can handle the volatility, that’s a pretty interesting place to look right now.”
The gold price started 2019 with a bang, peaking at $1851.78 an ounce on January 2 before slipping back to $1807.78. It is currently trading at almost $1811.
This surge is largely due to the recent extreme sell-off in equity markets and fears of an economic slowdown in both the US and Australia.
In the US, markets have “drastically repriced interest rate expectations”, according to Mr Eliseo, while in Australia the economic slowdown has weighed heavily on our currency.
Australia’s weak housing market is also a factor.
“Markets have totally given up on the idea that the RBA will be hiking rates this year and in fact it’s starting to look like maybe there’ll be an interest rate cut here,” Mr Eliseo said.
On January 3 the Aussie dollar bottomed at below 69 US cents before starting its recovery. It is currently worth about 71 US cents.
“With the Aussie dollar coming off, it’s been a double whammy for local gold investors and that’s why we’re back above $1800,” Mr Eliseo said.
This has translated into some nice share price gains for roughly half of the ASX-listed gold players.
Junior explorer Argent Minerals (ASX:ARD) has added 58.3 per cent to its share price since December 24 and is trading at 1.9c.
Argent has projects that host gold resources in the prolific Lachlan Orogen region of New South Wales.
Echo Resources (ASX:EAR), meanwhile, is up 44 per cent over the same period at 16.5c and was quizzed by the ASX over the sudden rally.
While the company said it was not aware of any reason for the increase in price and trading volumes, it pointed to the “markedly improved” gold price.
Echo is also backed by larger gold producer Northern Star Resources (ASX:NST), which injected a further $4m into the junior in December.
Junior gold producer Beadell Resources (ASX:BDR) is up a tidy 30 per cent since December 24, trading at 5.2c.
Beadell operates the Tucano gold mine in northern Brazil and is in the process of being taken over by Canadian producer Great Panther, which tabled an all-scrip offer at a 51 per cent premium.
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Taking a breather
Mr Eliseo said the gold price was “well overdue a breather” and the market has already started seeing that with the recent pullback from its peak.
“I think the market could well consolidate over the next couple of weeks, but the dynamics that are pushing the price higher are fairly firmly in place now,” he said.
“If I was already a gold investor, which in my case I am, I’d be holding onto my position.
“If I was basically looking to enter, I wouldn’t be piling in now after it’s just rallied $150 in a month or thereabouts in Aussie dollar terms, I’d be waiting for a bit of a pullback and sort of slowly eke in my capital into the sector.”
Goldman Sachs is probably the most bullish on gold, forecasting an average of $US1313 ($1840.26) an ounce this year, before rising rapidly to $US1413 in 2020 and then up to $US1510 in 2021.
>> Read Stockhead columnist Tim Treadgold’s recent predictions for gold here.
At the current Aussie dollar exchange rate, $US1515 would amount to around $2100 an ounce.