The Oil Crash Has Australia's Gold Stocks Back In Favour

Getty/Chris McGrath

Australian gold stocks are surging ahead as their oil counterparts get crushed.

Listed gold miners have been coming out of the shadows this year, posting some decent gains of the ASX.

The primary driver for the stronger share prices is an improvement in the gold price which has slowly started to climb from its fall below $1150 an ounce in November.

Overnight gold was up 1.1% to $US1,219 an ounce, a three-week high as the Eurozone economy shows more signs of slowing. Gold has long been regarded as a safe haven in times of economic or political turmoil and can be driven by sentiment.

Gold has climbed 7.9% from a four-year low in November. Since then political turmoil in Greece has escalated, as has speculation both European and Chinese governments will bolster economic stimulus.

Since early November the S&P/ASX All Ordinaries Gold Index has risen about a third to 2239.8. Over the same period oil prices have almost halved — overnight WTI crude hit $US49 a barrel.

Here’s the chart.

Since early December shares in one of Australia’s largest gold miners, Newcrest Mining, have increased more than 35% from about $9.18 to today’s trading price of $11.69.

Regis Resources has taken a similar path rising from $1.29 a piece in December to $2.04 today. Doray Minerals is also at its highest point since the end of October 2014, closing Wednesday trading at $0.48.

In fact you can almost pick any gold stock on the ASX and the majority follow the same trend.

Northern Star Resources has climbed from $0.965 in December to $1.71 a piece today. Over the same period Ramelius Resources climbed from $0.047 a share to $0.077 today — its latest surge was on the back of better than expected gold production at its Mt Magnet operation.

Anglogold Ashanti made smaller gains over the same period but was up 3.67% to $2.26 at the close today.

In the 24 hours to 8am Sydney time on Wednesday, nine of Morgan Stanley’s top 10 positive price movers were gold companies.

Morgan Stanley is forecasting the price of gold to stay above the important $1,000 an ounce mark for the full calendar year with an expectation it will teeter above $1,165 an ounce.

But it notes that it’s “hard to get excited about a commodity in which all key indicators point to lower prices over the medium-term.”

“Beyond expectations of a stronger USD, rising real US interest rates and bond yields and a lack of inflationary pressure will also generate considerable headwinds for gold and the other precious metals. As a result we continue to forecast lower gold prices in the coming quarters,” the investment bank said in its commodity manual this week.

Gold miners face issues of dwindling resource bases — especially as mines get deeper costs increase and squeeze margins. However, growing consumer demand, particularly from India and China, will be a positive for the precious commodity in coming years.

Here’s the chart.

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