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How to invest in Australian gold miners: Rising Aussie production offsets falling prices

By Fitri Wulandari

Edited by Jekaterina Drozdovica

13:50, 18 October 2022

Gold specimen in its natural form, just dug from the earth
How to invest in Australian gold miners Photo: anne-tipodees / Shutterstock

Australian gold miners’ stocks have remained under pressure from softening gold prices. Persistent aggressive tightening of monetary policy by central banks to combat soaring inflation, including by the Reserve Bank of Australia (RBA), has dimmed gold’s lustre as a safe haven. 

While the upside for gold prices was expected to remain limited as central banks were widely tipped to continue their rate hike cycle at least until the first quarter of 2023, analysts have kept positive ratings for Australian gold miners’ stocks.

Australia's gold production outlook could be a bullish factor when researching gold mining stocks. Mining companies started to recover from labour shortages and logistics problems from Covid-19 restrictions.

So, how can retail traders get exposure to these companies’ stocks? We look at the performance of gold mining shares in Australia, the county’s gold production outlook and various instruments you can use to invest in the country’s gold mining stocks.

What is happening to Australian gold miners' stocks?

According to Market Index’s data, as of 18 October, the top three Australian gold mining companies listed on the Australian Securities Exchange (ASX) have seen their share prices drop in line with falling gold prices. The price of gold has fallen over 8% this year, as of 18 October. 

Newcrest Mining Limited (NCMau),  Australia's largest gold miner after BHP Group (BHP),  with a market capitalisation of $15.85bn, has seen its share price fall 27.95% in one year, according to Market Index. 

Shares in Northern Star Resources Limited (NSTau), the third largest Australian gold mining company, with a market capitalisation of $9.38bn, have fallen 14% in a year. Evolution Mining Limited (EVN), with a market capitalisation of $3.67bn, has lost 46% of its value in the same period. 

Capital.com’s market specialist Piero Cingari noted: 

“The top three Australian gold miners by market capitalisation had rather divergent performances this year, indicating that factors other than commodity prices influenced stock trends in this sector.”

In comparison, the S&P/ASX 200, on which the three companies are listed, has dropped 8.94% year-to-date (YTD) and 8.15% in a year as of 18 October, Market Index’s data showed. 

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Australia’s gold mining rebound

Australia, the world’s second largest gold miner, was forecast to produce 331 tonnes of the precious metal in the financial year 2022/2023, a 7.6% increase year on year, according to Australia’s Department of Industry, Science and Resources in its quarterly Resources and Energy Report issued on 4 October. 

The country’s gold output dropped 3.7% in the previous financial year. Production was expected to increase by 5.3% to 349 tonnes in 2023/2024, the agency’s latest projection showed. The rise in production will come from new Australian gold mining companies and the expansion of existing mines.

The report projected Australia’s gold exports to rise 36% to 330 tonnes in 2022/2023, from 242 tonnes in 2021/2022, which was down 14.5% from a year earlier. The country’s gold exports were forecast to increase at a slowing rate of 5.3% to 347 tonnes in 2023/2024.

The agency highlighted weaker than expected gold prices as a downside risk for the Australian gold production outlook, noting:

“In this scenario, high-cost Australian producers would be expected to cease or cut back their operations.”

The agency projected gold prices to fall at an annual rate of 4.9% to $1,614 an ounce in 2024, from about $1,788 in 2022. The lower gold price in US dollars was expected to lower the Australian dollar (AUD) gold price from around AUD2,540/oz in 2022 to A$2,160 in 2024. The agency said:

“Gold prices have mostly resisted sharp increases in real bond yields so far this year, however this resistance is expected to unwind over time, as interest rates continue to rise and as global economic uncertainty continues to support the US dollar. Lower safe haven demand will do less to ameliorate the impact of higher interest rates on gold demand.”

How to invest in Australian gold miners?

There are two ways to invest in Australian gold miners. According to Capital.com’s Cingari, you can invest in a single gold mining stock listed on the ASX or in gold exchange-traded funds (ETFs) with exposure to the Australian mining sector.

Stocks

Stocks in Australian gold mining companies can be purchased through stock brokers or trading platforms. 

Before deciding to invest in Australian gold miners stocks, you should conduct extensive due diligence to select Australian gold miners that are suitable to your portfolio goals and risk tolerance.

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is not a reliable indicator of future results. And never invest money you cannot afford to lose.

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Sector funds

An exchange traded fund (ETF) is an investment vehicle designed to track a specific group of stocks, bonds, commodities or other assets in a single basket. Investors can gain access to a diverse set of assets and markets by purchasing ETF shares. 

The assets of the fund are owned indirectly by the shareholders, who receive an annual report. Shareholders are entitled to a portion of the fund's profits, such as dividends or interest, as well as a residual value if the fund is liquidated. Their ownership stake in the fund is easily transferable.


With ETFs, buyers can skip the hassle of choosing the most profitable Australian gold miners on their own by buying a thematic ETF that covers the whole sector.  Cingari gave examples of ETFs with exposure to Australian gold mining companies, Global X Gold Explorers ETF (GOEX) and VanEck Junior Gold Miners ETF (GDXJ). Australian gold miners account for 20% of Gold X Gold Explorers ETF portfolio and 15% of VanEck’s. 

Trading Australian gold miners' stocks and ETFs with CFDs

Another alternative to trade Australian gold miners stocks and ETFs is through a contract for difference (CFD).

A CFD is a popular derivatives instrument, and essentially is an agreement between a broker and a trader to exchange the difference in value of an underlying security between the beginning and end of the contract.

With CFDs, traders can speculate on the price movement of an asset in either direction. They can buy and sell contracts based on whether they believe the asset's price will rise or fall, opening a long or a short position

CFDs enable traders to open a position with only a fraction of the value of their trade, also known as margin or leveraged trading, which involves borrowing funds from the brokerage. Note that leverage can magnify both profits and losses, and is subject to overnight fees.

At Capital.com, for example, we offer CFDs on VanEck Junior Gold Miners ETF (GDXJ) with a 20% margin (or 5:1 leverage). This means that you can open a position worth £1000 only paying £200 as your deposit. 

There are a number of risks associated with leverage. For example, if the market price moves against your position, your broker may ask you to add additional funds to prevent a margin call. Leverage can also magnify both profits and losses, therefore traders should always conduct their due diligence to understand all risks involved.  

Risks in investing in Australian gold miners stocks

Investing in Australian gold mining stocks has also sector-specific risks. According to Cingari, like any gold miners, Australian gold miners are sensitive to the movement of gold prices, which can be influenced by US interest rates and inflation. He noted:

“The stronger the Fed signals its willingness to raise interest rates aggressively, the greater the downside impact on global gold miners, including those in Australia.”

Foreign investors who buy gold mining shares in Australia are also exposed to currency risk, he added. A falling AUD reduces the overall return on the investment and vice versa.  

As Australia is one of the biggest gold producers, the AUD/USD exchange rate has positive correlation to gold prices and moves in tandem. Rising gold prices often move AUD/USD up, due to rising demand for AUD. A stronger USD typically causes the price of gold to fall. 

Bottom line

While Australian gold miners' stock gains could be capped by weaker gold prices, the country’s robust production and exports may cushion the falling prices.

Note that analysts’ predictions can be wrong. Forecasts on the future of Australian gold mining shares mentioned in this article shouldn’t be used as substitutes for your own research. Remember that past performance does not guarantee future returns. 

Always conduct your own due diligence before trading gold mining companies in Australia, looking at the latest news, technical and fundamental analysis, and analyst commentary. And never trade money you cannot afford to lose.

FAQs

What company is Australia's biggest gold miner?

BHP Group (BHP), Newcrest Mining (NCMau) and Northern Star Resources Limited (NSTau) were Australia's biggest gold miners by market capitalisation, as of 18 October.

How many gold miners are there in Australia?

According to Geoscience Australia, there were 141 operating mines in the country in 2018.

Should I invest in Australian gold miners?

Whether you should invest in Australian gold miners’ stocks should depend on your risk tolerance, investing goals and strategy. Always conduct your own due diligence before investing.

Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.

Markets in this article

AUD/USD
AUD/USD
0.66109 USD
-0.00392 -0.590%
BHP
BHP Group
59.49 USD
-0.15 -0.250%
Gold
Gold
2338.64 USD
-22.51 -0.950%
NSTau
Northern Star Resources
14.43 USD
-0.09 -0.620%
GDXJ
VanEck Vectors Junior Gold Miners ETF
44.91 USD
-1.04 -2.270%

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Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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