In a market where blue chip companies with the “least worst” results are regarded as winners, investors are switching attention to action among gold mining companies where a convincing rally has just been crowned by the arrival of the world’s greatest living investor, Warren Buffett.
Buffett’s Berkshire Hathaway this week broke its own rules and bought directly into US-listed Barrick Gold, a leading miner that once co-owned the famous “super pit” at Kalgoorlie Western Australia.
In common with Buffett, Australian fund managers have also been sceptical about gold miners, no doubt due to the humiliations of the past when gold stocks that were ostensibly attractive somehow managed to get it all wrong.
Anyone who has been through the wars with Newcrest Mining or St Barbara or many others will understand the caution.
More recently though, the miners have new friends. Just as Buffett’s arrival at the Barrick Gold register heralds a new attitude to the yellow metal, fund managers from WAM leaders to Fidelity International are updating their views.
No wonder. The gold price is already up by about 30 per cent this year, and in fact, it has been rising faster than NASDAQ.
What’s more, the forces pushing gold higher are unlikely to change in the months ahead as money printing, government subsidised markets and low interest rates go hand-in-hand.
As Fidelity International investment director Tom Stevenson explains, the “bull case” for gold is based on a view where bullion prices could move a long way higher from today’s price of $US2000.
According to Stevenson: “Between December 1978 and January 1980, the price of gold more than quadrupled from under $US200 an ounce to over $US800. This is the equivalent of a rise from the $US1200 an ounce at which gold traded last September to around $US5000. Agonising about whether you have missed the gold boat at today’s record high of just over $US2000 will seem ludicrous if we get a re-run of 1979’s flight to safety.”
Unfortunately, Stevenson does not tell us whether we are once more in 1979 when inflation was running wild and Treasurer Josh Frydenberg’s heroes Margaret Thatcher and Ronald Regan were about to unleash their policies on the markets.
In any event, the gold miners know exactly how to play the bullish atmosphere we have just now.
The sector is accelerating with merger and acquisition activity, capital raisings and some serious price moves. Our biggest gold miner, Newcrest - trading close to its high for the year - is at $33.86, up from $22 in March.
The nature of this latest gold rally will reveal itself in the months ahead with many jumping on the bandwagon, and others who have exposure to the scene making the best of it.
This week’s results from Oz Minerals, the owners of the copper and gold deposit Prominent Hill, showed how the company skilfully upped its gold output to underpin a powerful profit jump to $78m in the six months to June compared to $44m in the previous period.
But putting money into individual gold mines or miners is not for everyone.
For many it is all too hard and too risky.
With that group in mind, there is now a string of Exchange Traded Funds that collect scores of gold miners into a single basket.
Listed on the ASX there is VanEck Vectors Gold Miners and BetaShares Global Gold Miners, which both follow international mining stocks.
Overseas, the monster of the species is SPDR’s GOLD ETF on Wall Street.
The seventh-biggest holder of gold in the world, it holds more gold than many countries including India and the UK.
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