The Australia gold market is facing a flurry of exciting developments. Fat Tail Investment Research gold investments editor Brian Chu explains what’s to come for the sector.
After a record 2020 in Australian dollar terms, the gold market continues to deliver promise for Tier 1 producers right through to the junior sector.
And while prices may have dipped this year, investor interest in the commodity has maintained its strength.
Fat Tail Investment Research gold investments editor Brian Chu says investors can find stronger value from gold stocks this year thanks to the lower prices.
“What I have noticed is because there is a divergence in the price of gold and the gold stock index, gold has recovered all of its decline since early August where we had a $US120 ($163.71)-an-ounce drop in the space of two days,” Chu tells Australian Resources & Investment.
“The gold index is trading a bit lower, so chances are we are actually seeing better value in these gold stocks and we are currently in the middle of the campaign to bring in new subscribers for our gold trading service.
“Investors are waking up and realising that while the gold stocks are selling at lower prices than last year, it is actually offering them substantial value because they’re buying in at a more attractive price.”
Gold exploration expenditure in the 2020-21 financial year reached higher levels thanks to investor support for early-stage mining projects.
Despite the increase in activity, lower gold prices in 2021 have hit the share price of mineral explorers. Chu says this trend has elevated the interest in speculative gold stocks.
“There is increasing speculative interest as they realise maybe the selling down of these stocks is relative to the price of gold,” Chu says.
“That’s why the explorers are starting to catch a bid. It’s an important time for potential investors to look at strong companies in the speculative space and more established gold stocks space – there’s quite a lot of value to be had.
“I believe that we could actually see a bit of a catch up in investors buying up gold stocks, closing in the gap of the price of gold.”
Chu has established a strong understanding of the precious metal over the past decade.
Starting his investment journey during the 2013-14 gold bear market, Chu has accumulated enough funds to turn his investments into a full-time career.
Chu’s success analysing the gold industry led him to establishing Australian Gold Fund in August 2019, which he says is outperforming the ASX gold index by 15 to 20 per cent per annum.
He runs two gold stock investment services through Fat Tail, including Gold Stock Pro and Rock Stock Insider.
Both services use the well-renowned Lassonde Curve model of investment, which is used to track the lifecycle of mining stocks.
Gold Stock Pro implements this method to cater to investors who are willing to put their money in speculative mining plays listed on the ASX. It focusses on the long-term bull market of gold plays to deliver substantial profits.
“We are looking to bring people to Gold Stock Pro who want to take a bit more risk and invest in gold explorers and mine developers,” Chu says.
With new gold production coming online across Australia each year, exports have entered record territory.
Newcrest Mining’s Cadia East operation in New South Wales, which produced 764,895 ounces in the 2020-21 financial year, leads the way among Australia’s gold mines.
Strong production and shipments have also brought value to shareholders of many of Australia’s largest gold miners.
Chu’s second gold investment service, Rock Stock Insider, focusses on constructing a portfolio of high-quality stocks ahead of the next bull phase for the gold market, including some of Australia’s blue-chip mining companies.
His insights through Rock Stock Insider allow subscribers to invest in gold equities to boost their financial standings.
“Rock Stock Insider allows investors to get a foot in the door to understand the financial system of the mining industry and we also recommend to them more established gold mining companies so that they can be exposed to the benefits of the upcoming rally in gold and weakness of our (Australia’s) financial system,” Chu says.
With new gold mines beginning operations and other being expanded, production has been forecast to grow even further. Reflecting this upward trend, Australia even surpassed China as the world’s top gold producer for the first six months of the year.
Backed by booming prices for the precious metal, Australia’s global standing as a producer has caused many gold companies to push large investments into new deposits.
While this has resulted in new output coming online, Chu says the COVID-19 pandemic may hamper Australia’s chances at maintaining the top spot.
“State premiers trying to manage the risk of virus outbreak and win votes by showing their voters how tough they can be in managing COVID-19 has led to border crises,” Chu says.
“For example, Western Australia is currently facing a mining worker shortage as the fly-in, fly-out workers are held up at the border.
“So, we might take a little longer to be clearly ahead of China in terms of gold production if the politicisation of this virus and border closures continues in the next couple of months.
“I am noticing that a number of producers are reporting that cost will be up and are very careful about 2022 production guidance as a result of foreseeable border restrictions implemented by the Western Australia Premier.”
COVID-19 caused the stock market index to fall by 20-35 per cent last year, but gold and iron ore were exceptions.
“Last year was a very devastating case of global and economic financial weakness, but I believe when it comes to crises like that, human nature comes back in and we focus on what we feel safe with and gold has stood the test of time,” Chu says.
Traders determining the price of gold will be more fixated on monetary policy, global growth and inflation rather than the production of gold.
For Chu and many savvy investors, gold remains the fundamental safe-haven investment.
“The uptake of investors into our gold trading service is quite phenomenal. We are actually receiving more sign-ups now than in August 2020 when the price of gold was at their high.”
With significant value in gold investment, Chu’s services which are built upon his own personal expertise will prove to be an asset ahead of gold’s next bull run.
This article appears in the October issue of Australian Resources & Investment.