US gold prices have climbed again today after surging more than 3% in the previous session as the US Federal Reserve cut interest rates to help soften the economic blow from the coronavirus outbreak.
Spot US$ gold prices rose 0.3% to $1,644.97 an ounce, having registered its biggest one-day percentage gain since 2016 in the previous session.
US gold futures climbed 0.2% to $1,646.80. The Fed cut interest rates in an emergency move to safeguard the world's largest economy from the impact of the coronavirus epidemic.
Canaccord Genuity recently published a report highlighting the recent rise in US$ gold prices and its impact on ASX listed mid- and small-cap gold producers and developers/explorers.
Resolute Mining Limited (ASX:RSG) is the top pick from small-cap producers while Bellevue Gold Ltd (ASX:BGL) is the top pick from developers/explorers.
Following is an extract from Canaccord Genuitys report:
Go for gold[hhmc]
US$ gold prices at 6-year highs, while A$ gold at an all-time record: US$ gold prices have hit US$1,659/oz (at the time of writing), up 10% YTD, and at a level not seen since 2013. Similarly, A$ gold prices have also moved higher, up 15% YTD, trading at record highs of A$2,508/oz.
Supportive underlying macro compounded by safe-haven buying on coronavirus fears: Ongoing supportive macro factors for gold include huge amounts of negative-yielding debt, negative real rates, ongoing central bank easing, absence of inflation, and increased central bank buying. More recently, fears of the spread of the coronavirus beyond China have spurred a wave of safe-haven buying.
Gold equities – undervalued relative to gold price (and by historical standards?): Our gold producer coverage is trading at an avg implied gold price of US$1,334/oz, -9% vs spot. Similarly, the avg m/cap weighted P/NAV of our producer coverage is 0.82x, vs recent longer-run averages of +1x. Australian gold equities also look undervalued by historical standards, with the ASX Gold Index only now back to 2011 levels, despite A$ gold prices having increased by 101% over the same period. We advocate increasing exposure to gold equities as a hedge against current volatile market conditions.
Updated gold price/FX deck: Updated forward curve pricing assumptions for US$ gold see LT (2025) prices up by 9.6% to US$1,787/oz, with nearer-term (2020-2023) prices increasing by an avg of ~8.5%. Our LT AUD:USD assumptions have decreased by 3.7% to 0.669, resulting in a 14% increase to LT A$ gold prices to A$2,670/oz.
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