Why Macquarie Group Ltd thinks the share price of our newest gold stock is set to outperform

Donald Trump is gold’s best friend. Since he took the US presidency, the price of the precious metal has jumped by around 18%.

The US president has created an environment that is conducive to gold and anyone who thinks that the yellow metal is a relic from a barbaric era that has lost its relevance in today’s high-tech digital world is wrong.

Gold has proven itself as a safe and reliable asset to protect wealth for thousands of years and it did just that during the GFC a decade ago. We may not be returning to such dire economic times but the return of volatility that Trump can claim a lot of credit for will ensure that gold’s bull run continues for a while yet!

The problem facing equity investors is how to gain appropriate exposure to gold’s golden run. The obvious way many would pick is to buy shares in our largest gold producer Newcrest Mining Limited (ASX: NCM).

It might surprise you to know that the correlation between Newcrest and gold is actually not particularly strong. This means when the price of gold goes one way, Newcrest share price doesn’t necessary go in the same direction.

Since Trump moved into the White House in December 2016, shares in Newcrest has actually been trading around breakeven.

Taking a portfolio approach and buying shares in our gold producers would improve this outcome but Australia has a very shallow pool of large cap gold miners. Besides Newcrest, Evolution Mining Ltd (ASX: EVN) is probably the only other that fits the big cap producer.

This is why the listing of Canadian gold miner KIRKLAND/IDR UNRESTR (ASX: KLA), more commonly known as Kirkland Lake Gold, in December last year will be a welcomed relief as it will become the third force in the gold sector for Australian investors.

Kikland is listed on the Toronto stock exchange and has taken a second listing on the ASX. Macquarie Group Ltd (ASX: MQG) has initiated coverage on the stocks $4 billion plus market cap stock with an “outperform” recommendation and $25 a share price target.

“KLA is a high-grade high-margin gold producer with a strong organic growth pipeline across its Canadian and Australian operations,” said Macquarie.

“We believe KLA’s organic options could deliver a 900kozpa [thousand ounces per year] production rate by CY23 making it a significant addition to the ASX peer group.”

The arrival and (hopefully) success of Kirkland is significant for shareholders, particularly those in Victoria. There has been no successful ASX-listed gold producer with meaningful operations in this state.

Geologists that I’ve chatted with over the years have often described Victoria as a “graveyard” for gold projects because of the geology.

This makes Kirkland’s Fosterville project near Bendigo that much more of a standout. Fosterville is the miner’s flagship project and is the key reason why Macquarie is excited about the outlook for the stock.

But this isn’t the only stock investors should be excited about. The experts at the Motley Fool have identified another group of stocks that are well placed to outperform in 2018.

Click on the free link below to find out what these stocks are and why they should be on your radar this year.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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