Gold

Gold begins to shine: 4 ASX mid caps to watch

Wed 25 May 22, 1:16pm (AEST)
A collection of gold nuggets against a black background with one specimen in the foreground
Source: iStock

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Key Points

  • Gold has started to rally off the back of falling US Treasury yields
  • Lower yields is typically good news for the non-interest bearing yellow metal
  • Mid cap gold stocks tend to offer better production value, relative to their market caps

Gold is starting to shine as Treasury yields top out amid disappointing US corporate earnings and deteriorating economic data.

The closely watched US 10-year Treasury yield hit highs 3.2% in early May and has since pulled back sharply to 2.76%.

Tumbling yields typically spells good news for the non-interest bearing yellow metal, which bottomed out around US$1,800 last week.

Gold has managed to score a five-day win streak, reaching highs of US$1,870 on Wednesday. 

GOLD 2022-05-25 08-28-48
Source: TradingView

Shift in focus

Concerns about an overly aggressive Fed dominated headlines and market sentiment in late April.

So much so that the market abruptly rallied on May 5 after Fed Chair Jerome Powell said that a 75 bp hike wasn't being actively considered by policymakers.

The interest-rate oriented fear seems to have moderated, with investors now shifting focus towards weak corporate earnings, notably from US names such as Target, Walmart and Snapchat.

The shift away from interest rate concerns and weakening Treasury yields is now driving strong demand for safe havens.

Gold mid caps to watch

Gold giants like Newcrest Mining (ASX: NCM) and Northern Star (ASX: NST) often take the spotlight from mid caps, which trade at rather undemanding multiples and offer better tonnage.

The below table observes Newcrest, Northern Star and 4 mid cap producers.

2022-05-25 12 34 20-Book1 - Excel
Source: Company Data, Market Index peer comparison

The main takeaway is that names like Regis and Gold Road provide better production value, relative to their market caps, notwithstanding all-in sustaining costs and company-specific fundamentals.

Ramelius trails closely behind, while Newcrest and Northern Star are more expensive on the market cap/production basis.

Interestingly, this hasn't been something that has been reflected in year-to-date share price performance.

2022-05-25 12 43 31-NCM 2022-05-25 12-43-13.png ‎- Photos
Newcrest performance versus Perseus (Orange), Regis (Blue), Gold Road (Yellow) and Ramelius (Purple)

Though, all four mid caps have managed to outperform the large caps in the past 5 days.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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