The Gold Sector's back in our sights

James Gerrish

Market Matters

One definite characteristic of 2020 has been the blow-offs in the hot stocks / sectors followed by fairly aggressive corrections, just think precious metals, BNPL and the tech space. When the enthusiasm and optimism goes too far, a characteristic which can be easily identified by the degree of media coverage, its often time to lock in some cash and definitely not the time to be sucked into the “FOMO trade” (Fear of missing out) chasing of strength. Fortunately we have been patient in establishing a major precious metal position, currently we just hold just 3% in Newcrest (NCM) which actually rallied +1.3% yesterday when the sector was clobbered.

Gold was the topic dujour in early August with the most column inches being drawn into the gold narrative since the last price cycle 2009-2011. Everyone had an opinion and in typical situations like these the underlying security price was ready for a correction, now we’ve seen an almost 11% washout, MM believes it’s time to reassess.

The question today is do we add to our small position in Newcrest (NCM) or look elsewhere in the local sector. 

MM is keen on gold into current weakness.

Gold ($US/oz) Chart

Firstly, to keep today’s report succinct I have only briefly looked at our favorite 3 options for increasing MM’s gold exposure.

1 Newcrest Mining (NCM) $31.88.

Following its 20% correction heavyweight NCM has just started to outperform the sector for the first time in a long time which is encouraging but being the $26bn goliath in the room its unlikely to be the best performer if precious metals do enjoy a strong reversal from current levels i.e. it’s the low Beta option in the gold sector. However our buy zone of 4-5% lower is likely to be challenged this morning.

MM is keen on NCM into current weakness.

Newcrest Mining (NCM) Chart

2 Evolution Mining (EVN) $5.84.

We like EVN but from both a technical and valuation perspective MM’s buy level is ~8% lower.

MM is keen on EVN ~8% lower.

Evolution Mining (EVN) Chart

3 Northern Star Resources (NST) $13.61.

NST has proved to be a more volatile of the 3 stocks over recent week first falling almost 24% then bouncing strongly when the $US pulled back i.e. it’s the high beta play.

MM is keen on NST around $12.50.

Northern Star Resources (NST) Chart

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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