We’re talking the rip-roaring gold price today.
Before we do…I want to bring to your attention a bit of market symmetry you don’t see that often. You’ll see the connection to the gold market below too.
Early last year shares in Myer [ASX:MYR] flew up 14%, the day the company released a trading update.
This update came out in the middle of an overall rally that saw the stock rise over 80% between October 23 and March 24.
Why did Myer rally so much back then?
In 2023, the market became very bearish on the business and the retail sector.
Paradoxically, the trading update wasn’t even that good. But the market was surprised it wasn’t a lot worse. Hence the big jump up at the time.
That was then. This is now.
What do we see today?
Myer shares have just been hammered. They are down nearly 30% so far this year. Look at this shellacking on the chart…
| |
| Source: Optuma |
What’s going on?
Here’s the symmetry I alluded to above. Two completely opposite scenarios, a year apart.
Myer just released a trading update. The market had priced in a positive outlook for the result, and the business posted flat results.
Consumers remain under the pump. Discretionary fashion items aren’t an easy sell.
Why do you and I care?
This is where gold comes in…
You gotta dance where it’s raining
Myer may be a solid proposition in the long-term. Right now, though, they are under pressure from factors they can’t control.
That makes delivering a great result a difficult proposition, no matter how good management works the business.
Now compare that to the gold market.
Because the Aussie dollar is falling, to a 5-year low no less, the gold price in Aussie dollars is a rip roaring, record, $4,300 an ounce.
Any gold producer extracting gold from the ground at a decent price is racking big margins right now.
All a producing miner needs to do is hit their production guidance and cash will gush into their accounts. In turn, these companies may use the cash to expand their operations, buy more mines or pay their shareholders more dividends.
Point being: investing and trading are playing the odds.
You’re much less likely to be smashed on an update (like Myer) when you have a big tailwind.
But the retail sector has a headwind right now. Meanwhile gold miners are enjoying the tailwind.
Now, a caveat on the second point above. Gold miners have to hit their production guidance.
This is not to be treated lightly. Gold miners have a habit of disappointing at times. That’s an ever-present risk.
However, even so, the market can be more forgiving when your industry is flying than when it’s a disaster.
If you’re looking for alpha in 2025, it’s hard to go past the gold sector right now.
They are not the bargains they were a few years ago, at least as far as the established producers go.
However, it’s quite true to say that the current gold bull market has yet to send the explorers and developers into a frenzy.
As long as the gold price holds, it’s a very good bet that’s the direction we’re headed.
One thing I’ve learnt about bull markets over the years is that they can persist longer than you think.
Goodness me, between 2020 and into 2023, lithium juniors went on an extraordinary rise.
And no wonder. The lithium price when bananas.
Over the holidays, I read a small mining book called PayDirt by mining analyst Jeff Clark.
Jeff Clark described gold stocks in a way I haven’t heard before.
He called them ‘burning matches’.
What he means is you need to go after them when they are burning brightly. There will come a time when they burn your fingers.
It’s a creative way of saying they’re cyclical.
What’s the most important factor for a gold bull market?
A rising gold price.
A high gold price means big cash flows, leading to easier financing. That funds takeovers, mergers and deals. And it means more exploration.
These are the catalysts investors look for and can cause these stocks to start taking off.
It’s a pretty simple premise. But it’s a good reminder.
In other words, get busy looking for the ASX’s next gold star.
The cycle is moving up. If you want the opportunity to ride this one up, I suggest you go here before they flame out.
Best wishes,
 |
Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
Comments