Did You Catch This New High?

Tuesday, 4 February 2020
Adelaide, Australia
By Bernd Struben

  • The writing on the wall
  • And the RBA…

Gold has been money for thousands of years. Paper money has never lasted.’

Rock Stock Insider’s Shae Russell

If you’re a regular reader, you won’t be surprised by the below chart. I lifted it from this morning’s print edition of The Age.



chart image
Source: REFINITIV / The Age
Click to enlarge

When the article went to print, gold was trading for AU$2,380 per ounce. That’s its highest level ever in Aussie dollars. Up 34% since last April, when one ounce was worth a paltry AU$1,775.

It’s since slipped a touch. Currently, one ounce of gold will fetch you AU$2,359. Still, a tidy 33% gain since April if you’re holding onto physical bullion or a gold ETF. And potentially much more if you’ve invested in the right gold stocks.

Why the new record high?

Largely the same reasons that supported gold’s resurgent bull run in the latter months of 2019.

Demand remains strong. Both from central banks seeking to bolster their non-fiat currency reserves and distance their governments from the US dollar. And from retail investors lured by gold’s haven status. A status bolstered by the current fears over the spreading coronavirus.

Meanwhile, new global supply remains tight. A situation our head of research, Greg Canavan, expects to continue into the 2020s.

Then there’s the weak Australian dollar. At just under 67 US cents it’s still above the 64 US cent trough it hit in October 2008 during the fallout from the GFC. But well below the US$1.10 peak it reached in July 2011.

That matters because, as Greg reminds us, ‘The US dollar is the world’s reserve currency. Gold’s benchmark global price is in US dollars.

Much as I’ve railed against the RBA’s deliberate efforts to devalue the Aussie dollar, it’s certainly paid off for gold. And select gold stocks.

Northern Star Resources Ltd [ASX:NST], for example, is up 60.0% since 30 April.

Australia’s biggest gold producer, Newcrest Mining Limited [ASX:NCM] is up a more subdued 17.4%.

Then there’s Gold Road Resources Ltd [ASX:GOR]. Its share price has gained 55.8% during this same period.

Of course, not all gold stocks will go up…even with a rising gold price. And the smaller end of the sector — the gold explorers — carries even more risk. With the potential for a lot larger gains.

Over at Rock Stock Insider, published by or friends at Fat Tail Media, Shae Russell actively hunts for those larger gains from small, little known Aussie miners.

Like her long-time colleague Jim Rickards, Shae’s convinced gold is due for a new run of record highs. Not just in Aussie dollars, but US dollars as well.

Gold is a critical part of long-term wealth protection. Except it hasn’t been taught in any economic classes since the early 1970s,’ Shae says.

You can find out why Shae expects gold to rocket far higher — and the Australian gold stocks she believes could reap the biggest gains — by clicking here.

Now a look at the markets, where buyers have returned after the previous trading day’s steep sell-off.

Markets

Overnight, the Dow Jones Industrial Average closed up 143.78 points, or 0.51%.

The S&P 500 closed up 23.40 points, or 0.73%.

In Europe the Euro Stoxx 50 index closed up 20.36 points, or 0.56%. Meanwhile, the FTSE 100 gained 0.55%, and Germany’s DAX closed up 63.22 points, or 0.49%.

In Asian markets Japan’s Nikkei 225 is up 79.45 points, or 0.35%. China’s CSI 300, slammed for an almost 8% loss yesterday, is up 1.34%.

The S&P/ASX 200 is up 14.35 points, or 0.21%.

West Texas Intermediate crude oil is flirting with the $40-range, currently trading for US$50.03 per barrel. Brent crude is US$54.45 per barrel.

Turning to gold, the yellow metal is trading for US$1,577.70 (AU$2,359.35) per troy ounce. Silver is US$17.68 (AU$26.44) per troy ounce.

One bitcoin is worth US$9.333.12.

The Aussie dollar is worth 66.87 US cents.

The writing on the wall

Moving on from gold…

Yesterday we looked at how the goalposts can shift after you’ve already invested in a stock.

Take the royal banking commission. The big banks have struggled under the trust-busting weight of the damning findings — alongside the tens of billions of dollars in customer compensation — since before Kenneth Hayne even wrapped things up.

And that struggle looks set to continue for years. Until 2025, in fact.

From The Australian:

A year after royal commissioner Ken Hayne’s final report, former Federal Court judge Ray Finkelstein said the court system would take “five years or so” to deal with cases brought by ASIC…’

If you’re a shareholder of the Big Four banks — and if you’re in a managed super fund you mostly likely are — five more years of bad press won’t come as good news.

Of course, the big banks arguably have far bigger headaches ahead of them than five more years of unwelcome public reminders they’ve been acting unethically.

One of their biggest challenges, says Exponential Stock Investor’s Ryan Dinse, is that they’re woefully unprepared for the fast changing pace of technological innovations in the financial industry.

Protected by regulations and market strength, the banks had little incentive to focus on customer satisfaction or technological innovation.’

That’s left the Big Four vulnerable to seeing their market share picked apart by nimble, tech savvy start-ups. While the newly arrived competition hasn’t eroded the Big Four’s dominance yet, it’s got them alarmed. And now they’re playing a costly game of catch up.

Most of the banks, like Westpac and NAB, have responded by investing directly in promising start-ups.

Commonwealth Bank is taking a different tack. As The Australian Financial Review reports:

Commonwealth Bank of Australia chief executive Matt Comyn has said its new in-house start-up incubator will accelerate digital innovation at the institution by creating new companies, rather than following other Big Four banks down the path of passively investing in external players through venture capital funds.’

Comyn said CBA plans to launch 25 new start-ups over the next five years.

Novel approach…or another costly mistake?

For the answer, we turn to Ryan Dinse:

I’m sceptical of CBA’s chances of success here. There are a few question marks on how this scheme will work. Will founders have equity?  If not what kind of entrepreneur would that attract? 

Not a good one, I daresay.

And in my experience banks aren’t used to behaving like start-ups. They’ll try and “manage by committee”. And in turn be slow and unimaginative.

I think what this does show is that they see the writing on the wall. They finally accept change is coming. And they know they need to act.

My bet is they’ll ditch these plans a year or two in and end up trying to buy into proper fintech start-ups that are growing fast.

Our current picks are ideally placed for such an outcome.’

The picks Ryan is referring to are all stocks related to what he calls ‘the great bank unbundling’.

At market close yesterday all five of his ‘unbundling’ stock recommendations were well into the green. The best performer is up 320.6%. The worst is up 35.2%.

Now there are no guarantees the stocks will make similar gains over the coming months. But Ryan is convinced the best is still ahead.

For all the details, go here.

And the RBA…

In its first meeting of the year, the Reserve Bank of Australia (RBA) kept its finger off the trigger.

Australia’s official cash rate will remain at its record low 0.75%. At least for February.

That’s a wrap for today. Be sure to tune back in tomorrow…

Cheers,
Bernd