Concerns about potential stagflation in the United States, characterised by rising prices, a slowing economy, and increasing unemployment, are growing. This has been good news for gold prices, which hit record highs recently. Stagflation fears have also benefited ASX gold miners, with the sector rising 9.1 per cent last week amid concerns about the US economy, according to Goldman Sachs local strategist Matthew Ross.
However, the recent gains in ASX gold stocks have not kept pace with the global gold mining sector. Since mid-June, the local sector has fallen 13 per cent, while global gold stocks have risen 5 per cent, despite largely flat gold prices. UBS analyst Levi Spry attributes part of this underperformance to disappointing June quarter updates from local gold miners, including production delays, rising costs, and increased capital expenditure. Investors are questioning whether the expected cash flow bonanza will be delayed or prove disappointing.
Despite these concerns, Ross suggests that the recent underperformance of ASX gold miners presents a potential entry point for investors seeking to hedge against rising macroeconomic risks. Gold has historically outperformed during periods of ASX decline and when US interest rates and the US dollar have fallen. The sector also appears undervalued, trading at a discount to its 20-year average.
Goldman Sachs analysts anticipate margin expansion supported by higher gold prices and moderating cost pressures. They expect bullion prices to reach $US4000 an ounce in the next 12 months. Goldman’s top picks in the sector include Northern Star Resources among the large-cap gold miners, and Capricorn Metals, Bellevue Gold, Pantoro Gold, Westgold and Vault Minerals from the smaller end of the sector. Northern Star Resources is a leading Australian gold producer with operations in Australia and North America. Capricorn Metals is focused on exploration and development of gold projects in Western Australia.
