ASX gold shares have been lagging the market and their quarterly updates have been an overall disappointment – but now's precisely the time to be buying these shares.
That's the view of JPMorgan even though the broker found the latest quarterly production reports "underwhelming".
The broker isn't the only one that's been unimpressed. The market has largely cast aside our major ASX gold producers.
ASX gold shares have lost their shine
The Newcrest Mining Ltd (ASX: NCM) share price gained only 6% over the past year, while the Evolution Mining Ltd (ASX: EVN) share price and Northern Star Resources Ltd (ASX: NST) share price fell 3% and 11%, respectively.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) surged 34% over the same period and is closing in on its record high.
You can blame the falling gold price for the underperformance of the sector. Some of the ASX gold miners were even a little creative in their quarterlies to help paint a better picture, even though that didn't seem to help much.
Lacklustre quarterly updates
"There were few downgrades to FY21 guidance, but risk remains to the downside, with some hoping for up to 35% of annual production in the final quarter to get them to the low end of guidance," said JPMorgan
"Costs are under even more pressure, even after shifting as much capex as possible out of AISC and into 'growth' capex."
The broker believes a lot of the cost pressures were self-inflicted due to lower production. Mining a scale game and the less your produce, the worst your margins.
The outlook on the cost front isn't getting better either. You only need to look at the skills shortage in Western Australia to see that.
Turnaround for ASX gold shares in sight
But there is light at the end of the tunnel for the ASX gold sector. JPMorgan believes gold's retreat from its record of over US$2,000 an ounce to around US$1,700 an ounce could be on a turning point.
"Gold prices appear to have bottomed in the short term, and we have upgraded our near-term prices by $50, to $1,750/oz, thereby increasing earnings by 1-7%," said JPMorgan.
"We believe the sector continues to present good value on an NPV [net present value] basis."
That's encouraging given that JPMorgan's forecasts are below consensus. What this shows is that there could be too much bad news baked into embattled ASX gold shares.
ASX gold shares to buy today
JPMorgan upgraded its recommendation on the Regis Resources Limited (ASX: RRL) share price to "overweight" from "neutral" with a 12-month price target of $3.20 a share.
Its key picks in the sector include the Newcrest share price, Northern Star share price, SSR Mining Inc CDI (ASX: SSR) share price and Gold Road Resources Ltd (ASX: GOR) share price.
