Gold prices rise as investors shift bets to safe haven assets

Fri 17 Dec 21, 4:18pm (AEST)
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Key Points

  • Broad-based buying for ASX gold stocks on Friday
  • Investors are shifting investments from growth to cyclicals and safe-havens
  • Gold could benefit amid near-term risks like omicron, inflation and a weaker US dollar

The ASX gold index is up 4.8% on Friday as the market rotates away from risky bets and into cyclicals and safe-havens.

Household gold miners like Newcrest Mining (ASX: NCM), Northern Star Resources (ASX: NST) and Evolution Mining (ASX: EVN) are all catching bids, up between 4.4% and 5.8%. 

This new-found, risk-off narrative gathered momentum on Wall Street overnight, with the tech-heavy Nasdaq plunging 2.5% while the blue-chip Dow Jones closed near breakeven. 

US sectors including financials, materials, energy, healthcare and consumer staples all closed well in positive territory. 

A new era

Gold has struggled to find relevance amid an improvement in the global economy and rollout of covid vaccines, which has prompted funds away from safe haven assets to riskier investments.

This has been reflected in the performance of gold stocks, as the ASX gold index finds itself down 12.9% year-to-date.

That said, the playing field for gold is about to change following the US Federal Reserve's hawkish pivot to tackle skyrocketing inflation.

The Fed confirmed on Thursday that it will accelerate its bond taper and hinted at three rate hikes in 2022 and two more in 2023.

"If Wall Street is ready to abandon the short-term call for dollar dominance, gold could easily make a run back towards last month’s high over the next couple of months," said OANDA senior market analyst Ed Moya, adding that "the number of short-term risks remain elevated and that could ultimately lead to further inflows to gold now that much of Fed tapering and the initial rate hikes have been fully priced in."

Moya also flagged that omicron data from South Africa could be a potential catalyst for gold "over the next couple of days".

"If COVID deaths start to surge in South Africa, this omicron wave might prove more worrisome to the global economic outlook than initially thought," he added.

Central banks load up

World gold demand decreased by 10% year-on-year to 1,833 tonnes in the first half of 2021, according to the Office of the Chief Economist.

Offsetting the fall in gold demand was a 62% rise in official gold buying, that is, from central banks and other government financial institutions.

Growing debt levels, rising inflation, and the desire to diversify reserves all contributed to the growing appetite for gold among central banks.

Upside for gold stocks?

Gold stocks have moved stubbornly lower in 2021.

Broker consensus views Newcrest as a Buy, Northern Star as a Strong Buy and Evolution as a Hold.

Northern Star is seen as the large cap gold stock with the most upside, with a consensus price target of $11.75, suggesting a 24% upside to today's prices.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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