Junior miner, bullion-linked ETF on SGX rally on gold rush

Singapore

AS gold bulls rush in and push the yellow metal closer to multi-year highs - led largely by the US Federal Reserve's dovish posture - investors seem to have taken a shine to a junior gold miner and a bullion-linked exchange traded fund (ETF) on the Singapore Exchange.

Catalist-listed CNMC Goldmine Holdings - the first gold miner to snag a seat on the local bourse and also the largest - hit a year's high three weeks ago and has been flirting around that level since. As well, volumes in the SGX-listed SPDR Gold Shares ETF doubled in June from the previous month.

Spot gold prices have been rising and remained elevated above the critical breakout level of US$1,400 an ounce as at Friday.

On June 25, the precious metal scaled a near six-year high of US$1,439.21 an ounce with analysts saying the strong price action is likely to persist. Last week, more fuel for the gold rally came from the Fed, whose actions on interest rates tend to impact bullion prices.

Sadly, among the trio of listed gold miners on the SGX that collectively have a market value of nearly S$190 million and are in varying cycles of gold exploration and production, only CNMC Goldmine, which operates in Malaysia's Kelantan state, is feeling the glow.

SGX market strategist Geoff Howie pointed out that while CNMC Goldmine was not in the top 250 stocks by market value in the first half of this year, it was within the top 200 stocks by turnover. For the year to July 11, the stock has generated a 29.2 per cent total return.

CNMC has climbed by some 6 per cent over the first two weeks of July and closed at 27 Singapore cents last Friday - not too far from a 52-week high of 28 Singapore cents that it hit on June 25, the same day as the gold rush.

In May, the miner said higher gold output jolted first-quarter earnings by nearly threefold to US$1.38 million, a record since the third quarter of 2016.

Over that period, the average realised gold price stood at US$1,293.28 an ounce. On the other hand, its peers that are also listed on the Catalist board - Wilton Resources and Malaysia-based Anchor Resources - have not felt much of that love.

For this month so far, Anchor Resources' stock price has not budged too far from 1.2-1.3 Singapore cents (it closed at 1.3 Singapore cents last Friday), while Wilton Resources, a product of a reverse takeover of Hartawan Holdings five years ago which draws anaemic trading volumes, has lost ground. It finished at 2.5 Singapore cents on Friday versus three Singapore cents which it began the month with.

Wilton's Indonesian mine is expected to start commercial scale production this year, subject to the completion of its processing plant while Anchor Resources' hard rock processing is only expected to start this year.

The SPDR Gold Shares ETF, which reflects the performance of the bullion, saw a rise in investor participation in the second quarter of this year with volume traded and turnover surging 55 and 59 per cent respectively from the previous quarter, according to data from SGX.

The ETF has recorded a year-to-date return of 9.7 per cent and one-year return of 11.5 per cent, buoyed by uncertainty over the outlook for global economic growth and the possibility of the Fed's interest rate cut.

Last week, Fed chairman Jerome Powell cited several concerns regarding the US economy which traders deemed was the central bank making a case for rate cuts in July.

Economists suspect Mr Powell was doing the bidding of US President Donald Trump, who has been badgering it to slash rates, and warn of premature cuts.

"As the cycle matures and a slowdown appears over the horizon, the Fed needs to keep ample powder in stock to act vigorously when real risks appear. Insurance rate cuts will reduce that stock prematurely," DBS chief economist Taimur Baig said, adding that the 2020 US presidential election may be a "critical subplot" for the easing posture.

The Fed's remarks led to a bearish turn for the US dollar and in turn, a spike in the precious metal.

Historically, the greenback and gold prices have an inverse relationship - a weakening dollar makes dollar-priced commodities such as gold more attractive which heightens demand and pushes prices higher.

Other factors such as rising trade tensions and subdued global growth concerns have added to the appeal of gold, which is deemed a safe-haven asset.

Stephen Innes, the managing partner of Vanguard Markets, said: "Although there will be a few bumps on the way...we think there will be an even greater rush for gold in the coming weeks and months. Gold prices could stay on an upward path as central banks pivot to an easing stance, the US dollar turns gradually weaker with a more dovish Fed and the burden of harmful yielding debt rises".