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Gold’s bull run still has plenty left in the tank

The recent bull run of Australia’s mid-tier gold miners could continue well into the new year as the precious metal regains its safe haven status and stars align for the sector, analysts believe.

Shares in the nation’s gold miners have enjoyed a stellar run in the past month on the back of a resurgent gold price and a benign Australian dollar.

The combination of factors is presenting near-record operating margins for low-cost producers such as Evolution Mining, Northern Star Resources, Saracen Mineral Holdings, St Barbara and Regis Resources.

But analysts believe other circumstances could also work in the miners’ favour, potentially driving prices higher.

Data published this week showed the People’s Bank of China had lifted its gold reserves by 10 tonnes in December.

Analysts at Macquarie noted that while it was a relatively modest amount, it represented the bank’s first gold purchase after a two-year hiatus, raising the prospect of more buying to come.

RBC Capital Markets analyst Paul Hissey said gold’s recent rally had been spurred by tensions around global trade, faltering US equity markets and political uncertainty.

He forecast the gold price to average around $US1300/oz ($1800/oz), but said the share prices of gold miners could move higher on an expectation that the precious metal was going up further.

“We may be entering a period again where it is the broader moves in price which drive the entire sector,” he said.

“It doesn’t matter if a stock is expensive. If the sector rises on sentiment, expensive stocks will move upwards also.”

Mr Hissey also noted the healthy state of Australian producers, which offered a comfortable place to invest because they did not require a higher gold price to make their businesses better.

“The recent rally merely provides additional margins to already very healthy businesses,” he said.

However Mr Hissey cautioned that a reversal in the new-found enthusiasm for gold was only ever a Presidential tweet away.

Analysts also note the growing investor interest in gold-focused Exchange Traded Funds, which bought stocks uniformly across the sector as investor funds flowed in.

Mr Hissey said if the sentiment for gold remained positive, continued demand for stocks already owned by passive products was likely.

Macquarie said it saw increasingly positive signs for the bigger Australian gold miners with reduced US Federal Reserve hike expectations and strong ETF inflows in late-2018.

“We expect on-market ETF buying to be a tailwind for Australian gold producers over 2019,” the bank said.

“We continue to prefer gold stocks with strong organic growth pipelines such as Northern Star Resources and Resolute Mining, while we remain cautious on Newcrest Mining with the ramp-up at Cadia a key risk as mined grade is set to decline.”

Morgan Stanley said gold and silver were among its top commodity picks for 2019, suggesting “risk-off” sentiment and short covering could continue to fuel a rally in the precious metal.

But the bank noted the current rally looked set to run out of steam in the near-term on profit taking after positive US December jobs growth.

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