THE massive underperformance of gold equities compared with movements in physical gold appears to be due to different views on the metal between major Western investment centres like New York and London and investors outside of the Western trading bloc.
That’s the view of DRDGold CEO Niël Pretorius addressing a situation which has puzzled many over the last six months as gold has gone through $2,000/oz but gold shares have languished despite most of them having greatly improved fundamentals.
“The markets have not been kind to gold stocks during the last six months of 2023 despite the fact that the gold price held up nicely.
“It’s been suggested there’s a new, different dynamic at work. Previously, when Western investors lost interest in gold because of high interest rates and they sold the metal it went into freefall. Nobody bought it.
“Now, whenever the West does that, there’s a whole lot of institutions and governments outside of the Western trading bloc that are keen to reduce their dollar foreign currency holdings and they have been accumulating gold at a steady rate.
“But the price of gold shares is still very much determined by market sentiment in the West where investor appetite now lies with technology stocks like Amazon, Tesla, Google and the like. These have gobbled up a big chunk of investor capital.
“Western sentiment on gold is bearish so the gold shares are being disposed of despite the fact that they are trading at significantly better multiples than the technology stocks,” Pretorius commented.
The divide between gold and gold stocks is huge. When gold first went through $2,000/oz about three years ago shares in TSX-listed B2Gold reached C$9.50 while Barrick Gold hit C$40 a share. For the past six months – during which gold has sat above or close to the $2000/oz mark – B2Gold has traded at between C$3 and C$4 a share while Barrick has been stuck in a range of between C$20 and C$25 a share.
Interviewed on the sidelines of the recent Mining Indaba held in Cape Town B2Gold CEO Clive Johnson commented: “In 40 years I have never seen a disconnect like this between the gold price and the gold equities.”
Turning to the Johannesburg Stock Exchange Pretorius commented that “the gold industry in South Africa offers very good value.”
His opinion is worth noting because Pretorius is one of the few mining executives who tells it exactly like it is. When DRDGold shares went soaring during the last gold share boom he warned investors to leave trading in the stock to professional traders because of the extreme volatility inherent in the share.
