As fund manager Chris Brycki of Stockspot puts it: “History suggest when you get a burst of takeover activity in the gold miners, it’s just before gold prices go for a run.”
Gold was widely tipped to rebound in 2023 after the first signs of persistent inflation became clear.
Priced in US dollars, gold rose a respectable 2.5 per cent over the past 12 months. However, Australian investors in gold – through either individual stocks or funds – have already been making strong returns. In Australian dollars, last year gold moved higher by 6 per cent, against a 1 per cent drop in the wider ASX.
As the timing of the Newmont all-share merger offer confirms, gold looks likely to become a strongly performing asset class as demand for the commodity coincides with an expected peak in interest rates and a potential decline in the US dollar.
Private investors have been slow to move back into gold as outflows, in major funds across 2022 suggest.
But some of the world’s most powerful institutions were not wasting time in recent months, especially since key analysts had pointed to a pending gold rebound. In Australia, ANZ called a gold resurgence, while on the global market Morgan Stanley led the charge.
According to the World Gold Council, central bank demand for gold more than doubled last year, underpinning an 18 per cent lift in total demand, the largest total since 2011.
For most Australian investors looking to take a position in gold, the dilemma is whether to buy individual stocks or to buy exchange-traded funds based either on bullion or on a basket of goldmining stocks.
Individual stocks offer a much more volatile ride than ETFs – they are also prone to takeover activity.
Newcrest is the biggest Australian gold stock, but has a mixed history of mishaps in relation to mining operations and management leaders. Newcrest had actually managed to go backwards over the last 12 months – while the rest of the gold sector improved. Newmont has also moved on Newcrest while the company does not have a permanently appointed chief executive – a case of Newcrest leaving the gate wide open for a takeover approach.
Gold takeovers reached a frenzy in Australia in the late 2000s as companies such as Sons Of Gwalia and Lihir were acquired before the yellow metal reached a cyclical peak price in 2011. The Newmont bid for Newcrest may also unleash a new cycle of local M&A activity.
Many investors opt for ETFs as a first step into the gold market as a way to avoid holding costs of physical bullion – the best known ASX-listed fund is GOLD run by Global X (formerly ETF Securities), which has a market capitalisation of more than $2bn. Perth Mint’s PM Gold and BetaShares QAU are also popular.
Apart from ETFs based on bullion, there are also two ETFs that allow retail investors to buy a basket of goldmining stocks. The two funds are similar, except that the VanEck Vectors Gold Miners ETF is unhedged, while the BetaShares Global Gold Miners ETF is hedged.
Most balanced funds and active investors holding gold have an asset allocation of less than 5 per cent, though some funds will go much higher. Brycki’s Stockspot group recommends 15 per cent. The Future Fund’s CEO Raphael Arndt has said the fund, which takes the view that inflation will remain elevated in the near future, now holds “a few per cent” in gold.
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The monster $24bn bid for Australia’s biggest gold miner, Newcrest, from US-based Newmont puts the yellow metal back in the headlines as investors watch what may become the first phase of a resurgence in gold markets.