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With the gold price falling, have ASX gold shares bottomed?

Long heralded as the ‘safe-haven’ investment in the time of a crisis, the spot gold price has tanked as fears of the COVID-19 pandemic rise. So, why is the gold price falling and which ASX gold shares should you be watching for a bounce?

Why is the gold price falling?

The gold market is struggling to gain any traction as massive volatility rocks global financial markets. The spot gold/US dollar price is currently trading below $1500 per ounce at the time of writing after hitting a high of $1704 earlier this month.

According to analysts at Australian and New Zealand Banking Group (ASX: ANZ), the gold price is undervalued and could hit $2,000 by the second quarter. Analysts cited that the gold price has come under renewed selling pressure as broad market volatility forces investors to sell everything.

So, here are two ASX gold shares to watch for a bounce:

Newcrest Mining Limited (ASX: NCM)

Newcrest is Australia’s largest gold producer, however, the company’s share price has come under pressure recently given the sinking spot gold price and reduced production numbers.  

Last week, Newcrest informed the market it was downgrading its gold production to the lowest level since 2013. The downgrade is a result of difficult mining conditions at Newcrest’s biggest gold producing Lihir mine in Papua New Guinea. As a result, the company expects production from the mine to be between 17% to 20% lower from previous expectations.

The revised guidance from Newcrest’s Lihir mine was compounded by production downgrade of 10% from the company’s Telfer gold mine in West Australia.

Gold Road Resources Ltd (ASX: GOR)

Gold Road is an exciting mid-tier gold producer and exploration company with its flagship, joint-venture Gruyere project located in Western Australia. The Gold Road share price surged more than 21% yesterday as investors looked for a potential bottom in the gold price.

The Gold Road share price hit a high of $1.79 earlier this year after the company announced a 1.2 million-ounce upgrade for its Gruyere project. The company forecasts gold production from the mine for 2020 to be in the range of 250,000 to 285,000 ounces.  

Should you buy?

In my opinion, gold producers on the ASX look to offer great long-term potential. With the US Federal Reserve aggressively reducing rates to zero and launching a $US700 billion quantitative easing program, the spot gold price should eventually benefit from the stimulus.

Analysts cited a similar price action in gold during the Global Financial Crisis in 2008 when investors sold gold holdings in a bid to gain liquidity.

In order to profit from a rise in the gold price, I think investors should create a watchlist of high-quality ASX gold shares and wait for positive price action before making an investment decision.

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Motley Fool contributor Nikhil Gangaram 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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