Monsters of Rock: Are gold stocks about to enjoy a good summer?

Pic: Alexander Spatari/Moment via Getty Images

Gold miners will be eagerly awaiting news of a potential rate pause at this week’s FOMC meeting
ANZ expects rates to remain high with US economy showing no imminent signs of recession
ASX gold sector has greatly outperformed materials index in 2023

Gold stocks will be buoyed by suggestions out of the US that inflation levels mean rates will likely stay steady as a rock at the US Fed meeting this week.

According to Reuters the prospect of a pause at FOMC meeting this Wednesday is up to 99%, as per the CME’s Fedwatch Tool.

The fund rate has lifted consistently since March last year aside from a pause in June, which preceded a 25bps lift to 5.25-5.5% on July 26.

That should be positive for Australian gold miners, who are currently sequestered at the Denver Gold Forum with their North American pals, the biggest large cap gold conference of its kind globally.

Prices rose 0.2% to US$1933/oz overnight, but a weakening Aussie dollar also helped push local gold prices beyond $3000/oz, something that should leave around $1000/oz in spot AISC margins for most local players provided they aren’t trapped by out of the money hedges.

ANZ’s Adam Boyton said commodities like copper and gold were waiting for signals from the FOMC meeting this week.

While it could see a pause – positive for gold given sentiment for the yellow metal is impacted by the attractiveness of holding cash – the US Fed’s fund rate could stay high for some time to come.

“While the Fed is expected to keep rates on hold, strong economic data is raising the prospect of rates remaining high for the foreseeable future,” Boyton wrote in a note today.

“Treasury Secretary Janet Yellen said the US economy is showing no signs of a looming recession, with the labour market still healthy and industrial output rising.

“Gold managed to push higher as inflation expectations fell. This should encourage policy makers to hold rates steady at this week’s FOMC meeting.

“The prospect of strong demand from China also buoyed sentiment. The PBoC (People’s Bank of China) lifted temporary curbs on imports that were imposed in a bid to defend the renminbi.”

Gold miners lift steadily in anticipation

The wait is often the most painful part of the game, but traders remain cautiously optimistic.

Big boys Northern Star (ASX:NST), Evolution (ASX:EVN) and Newcrest (ASX:NCM), the latter of which saw likely American acquirer Newmont receive Aussie Foreign Investment Review Board approval this morning, were all in the green.

Larger gains were found in the mid-cap space, where price shifts have a magnified effect on cash and earnings.

Ramelius Resources (ASX:RMS) ran up 4.79%, while Silver Lake Resources (ASX:SLR) made back 3.98% after being hammered yesterday on news it had acquired an 11% stake on market in King of the Hills gold mine owner Red 5 (ASX:RED).

Mark Clark-chaired Capricorn Metals (ASX:CMM) rose 3.01%, while West African Resources (ASX:WAF), Emerald Resources (ASX:EMR) and Perseus Mining (ASX:PRU) also saw interest alongside the Aussie-focused gold producers.

The ASX All Ords gold sub-index rose 1.26%, and is currently sitting at a 15% return YTD, compared to a lift of just 1.75% across the ASX materials sector.

The materials sector fell 0.77% today as iron ore and battery metals stocks lost favour with investors.