Gold just cracked $2000 and these 60 – 60! – small caps went for a run higher today
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Just in case you hadn’t heard: gold has gone nuts, rocketing through the magic $2,000-an-ounce mark. That’s a never-before-seen record.
— Jordan Eliseo (@JordanEliseo) June 20, 2019
So here at Stockhead we thought it was time to give our loyal readers an update on which small cap stocks are enjoying some nice share price appreciation, and which stocks are attractive takeover targets now the bigger producers are building their cash reserves.
The record high gold price, in both US and Aussie dollar terms, is thanks to a perfect storm of factors, including murmurs by the US Federal Reserve of further interest rate cuts, fears the US-China trade war will negatively impact financial markets, and a weakening US and Aussie dollar.
“Lower interest rates typically lead to a lower US dollar and of course the gold price moves typically inversely, in the opposite direction, to interest rates and the US dollar,” says Gavin Wendt, senior resources analyst and founding director of MineLife.
“So if you put those factors together, it’s flowed through into a very, very strong Aussie dollar gold price.”
This has prompted record buying by central banks – in fact the biggest amount bought in nearly 50 years, according to IBISWorld.
“Central banks have been buying gold in record levels – Russia in particular, China has been adding to their reserves,” Wendt told Stockhead.
“The economic health picture in the United States isn’t looking as sound as it was and the value of those dollar reserves is going to fall also.
“So it has been a good time over recent years to be switching out of the US dollar and into gold.”
Fat Prophets founder Angus Geddes said he sees the gold price heading higher still.
“We have been waiting a long time for this move, and now that it has potentially arrived, there is in my view, much further to run,” he said.
Wendt forecasts at least another $US100 upside in the gold price in the near term.
“If we look at all of the positives that are driving gold and what could potentially derail gold’s momentum, I don’t think there’s a lot out there,” he said.
“If you put together inflation, weaker economy, lower interest rates, a lower dollar, more uncertainty around what Trump’s going to do next, the fact that the US debt is going through the roof — they’ve got to service those debt repayments, and the fact that central banks are buying gold, it’s hard to see anything in the near term that’s going to derail that sort of confluence of very positive factors.
“So $US1400 to $US1500 I think could be the target range for gold over the next six to months easily.”
The strong gold price has sent 60 stocks on a run north.
Here are today’s small cap gold movers:
Swipe or scroll for full table
With the strong gold price, Aussie gold producers will be making more cash and considering their next moves to expand their resource inventory.
“Domestic Aussie gold producers are going to be making even more money, and they’re going to have even bigger war chests,” Wendt said.
“It’s going to put those companies that are in the mid-cap space in an even stronger position to look at doing corporate deals, and we’ll probably see the rate of corporate deals increase once again I would imagine because these companies are going to be even more cashed up.”
This makes several small caps potential attractive targets.
Wendt said Capricorn Metals (ASX:CMM), which has already knocked back two takeover bids, has a significant resource base and is “set up for some sort of corporate action”.
Earlier this year Capricorn was the subject of a board spill and has new management that is now revisiting “past failed transactions” and looking for potential new suitors.
The company is re-opening the data room to attract potential buyers or partners for its Karlawinda gold project in Western Australia.
Bardoc Gold (ASX:BDC) is another junior Wendt sees as attractive to the bigger guys.
The company was the result of a merger between Excelsior Gold (ASX:EXG) and Spitfire Materials (ASX:SPI).
Prior to that merger, Spitfire tied the knot with Aphrodite Gold.
“They spent the last year-and-a-half consolidating and growing the resource, getting it to the point where they’ve got more confidence that they can press the button on a potential production situation,” Wendt said.
“They’ve now got a 2.6-million-ounce gold resource base in the North Kalgoorlie district.”
Other emerging producers on Wendt’s list include De Grey Mining (ASX:DEG), Bellevue Gold (ASX:BGL) and Egan Street Resources (ASX:EGA).
“Egan Street, Bardoc, Capricorn and Bellevue — companies that aren’t in production yet — are four companies that I think would definitely be on the radar screens,” he said.
“And then you look at something like De Grey certainly, and then Red 5 which is actually producing and moving along.
“You can look at Echo Resources (ASX:EAR) as well.
“You’ve certainly got candidates there that have a lot of gold in inventory.”