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With US–Iran tensions de-escalating, is this a top for ASX gold shares?

US–Iran tensions may have peaked following Iran’s missile attack on 2 Iraqi bases. The attacks further strengthened the gold spot price that had already soared to a 7-year high.

This resulted in ASX gold shares such as Newcrest Mining Limited (ASX: NCM), Evolution Mining Ltd (ASX: EVN), Northern Star Resources Ltd (ASX: NST) and Saracen Minerals Holdings Limited (ASX: SAR) breaking out of their recent share price slumps.

However, it appears as though the US–Iran conflict has de-escalated, with US President Donald Trump signalling that he would not retaliate with military force for Iran’s missile strikes and that “Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world.”

Gold peaked yesterday at US$1610 or A$2350, but Trump’s remarks and no further escalation saw the yellow metal close at just US$1550. I believe without any additional catalysts, the gold spot price has topped in the short-term.

Gold stocks to watch

The ASX’s large-cap gold producers are all high quality producers with its own unique growth and production characteristics. Saracen and Northern Star are more growth orientated, both organically and via acquisition, while Newcrest and Evolution have lower all-in sustaining costs (AISC).

Saracen has recently completed the acquisition of the Super Pit, one of Australia’s largest and most successful gold mines. The site had 730koz of gold production in 2018 and Saracen will be partnering up with Newcrest Mining for this joint venture. The acquisition puts Saracen’s production (from 360koz to 650koz guidance for FY20) in the same league as larger players such Northern Star (980koz guidance for FY20) and Evolution (750koz guidance for FY20). The new acquisition has resulted in an increase in AISC with pro forma FY20 AISC of A$1,220/oz, up from A$1,050/oz. The significant increase in Saracen’s gold production makes it much more leveraged to benefit from an increase in gold price relative to other producers.

Likewise, Northern Star have also taken interest in the Super Pit, recently acquiring a 50% interest. Northern Star expects its share of the Super Pit to add 120koz to 140koz to its FY20 gold production at an AISC of A$1,450 to A$1,550/oz.

While Evolution and Newcrest have not made any exciting acquisitions, they possess some of the lowest AISCs, sitting at A$1,080 and US$899, respectively.

Foolish Takeaway

I believe the gold spot price has reached a short-term top unless there is further escalation between US–Iran and/or US–China relations. It would be a good opportunity to sit on the sidelines and wait for opportunity. I personally favour Saracen, as its recent acquisition significantly changes its production and earnings potential, and Newcrest as the largest Australian producer with the lowest costs.

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. 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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