Gold EFT at record but this ASX gold stock loses lustre

The gold sector is shining bright as uncertainty over tomorrow’s US and China trade negotiations prompt investors to seek the safety of the precious metal.

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The gold sector is shining bright as uncertainty over tomorrow’s US and China trade negotiations prompt investors to seek the safety of the precious metal.

That’s good news for ASX gold stocks – well at least for most of them as Ramelius Resources Limited (ASX: RMS) isn’t partaking in the merry making after it posted its latest update.

The Ramelius share price slumped 1.4% to $1.36 in morning trade when its peers like the Northern Star Resources Ltd (ASX: NST) share price, the Regis Resources Limited (ASX: RRL) share price and the Evolution Mining Ltd (ASX: EVN) share price are trading 0.5% to 1% higher.

While US equities bounced in overnight trade on encouraging news that the Chinese are still willing to make a small trade deal even as the US imposes restrictions on some Chinese officials linked to the detention of Uighurs and on some Chinese tech companies, ASX investors aren’t willing to make bets.

Ramelius update disappoints

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is flip flopping between gains and losses as local investors sit on their hands, although shareholders in Ramelius look keen to lock in some profit on the back of the gold miner’s quarterly production report.

The miner produced 44,182 ounces of gold in the September quarter, which was at the lower end of its guidance of 43,000 to 47,000 ounces, and reported a cash and gold balance of $92.8 million.

There wasn’t anything sinister in the update but it did give investors a reason to take some profit off the table after the RMS share price surged over 200% over the past year.

To put that in context, that’s miles ahead of the gold majors. For instance, the Newcrest Mining Limited (ASX: NCM) share price jumped 85% while Evolution Mining gained 77% over the period.

That isn’t surprising as smaller more marginal players tend to outperform when the commodity they’re leveraged to (in this case gold) rallies.

Don’t underestimate the gold sector

While value is arguably hard to come by given the strong outperformance of the gold sector, I don’t think the good times are coming to an end anytime soon. This means any material dip in the share prices of ASX gold producers (particularly those operating Australian mines) could prove to be a good buying opportunity.

My bullish take is predicated on the belief that the gold price, particularly in Australian dollar terms, will stay higher for longer.

The external environment that includes an erratic US president, trade wars, Middle East tensions, the impending Hong Kong recession, the chance of QE and zero (or negative) interest rates make gold the perfect safe haven asset.

These tailwinds aren’t likely to abate anytime soon (although the US presidential elections in November next year would be an interesting event to watch).

The macroeconomic backdrop explains why holdings of gold-back exchange traded funds (ETFs) hit a record high in the month of September when it increased by 75.2 tonnes to 2,808 tonnes.

Gold isn’t about to lose its shine anytime soon.

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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Ltd and Regis Resources Limited. Connect with him on Twitter @brenlau.

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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