The Gold Blow Off Brewing — Gold Share Price Outlook
1. I mentioned a while ago that subscribers to Cycles, Trends & Forecasts made an 80% gain in four months on a stock called Maas Group Holdings Ltd [ASX:MGH].
My rationale for selling at the time was that its valuation was looking very stretched for an industrial stock.
It’s even more stretched now. We sold out at around $4.50. Yesterday, Maas hit more than $6 in intraday before closing back at $5.80.
Why mention it? Maas released their latest company announcement yesterday. We can glean some interesting observations from it.
MGH has quite a substantial real estate portfolio in terms of land and developments.
Those property assets are seeing strong demand from buyers and capital appreciation for the parts that remain on the books.
Maas is also making strategic acquisitions to further expand its real estate division.
There’s perfect proof that the company sees the property cycles as going onwards and upwards.
I was also intrigued to see MGH establishing a ‘build-to-rent’ portfolio for the business.
This is one of the themes Catherine Cashmore and I are tracking. But there’s no pure play on the ASX for this idea.
You can only, as of now, find companies where it makes up a small contribution to their earnings and current business model.
But keep your eye out for this theme.
As land prices inflate further in Australia and globally, the modern serfdom dynamic of today’s economy means more people will pay corporate landlords more of their lifetime earnings for shelter.
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And what of Maas Group as a stock? It has a bright outlook as a company, but that’s well and truly baked into the price now — and then some.
I would be surprised if Maas could lift any higher from here. The company is reinvesting its earnings back into acquisitions and longer-term payoffs.
We can’t know until the full accounts are out, but I suspect Maas’s free cash flow will be anaemic.
That takes us back to the current valuation. Maas has a market cap of $1.5 billion and trades for a P/E of more than 100.
Perhaps it goes to a P/E of 150 or 200. Anything’s possible — but I don’t like the odds.
2. I mentioned the other week that one problem with gold stocks is that you can get the gold price right, but mining is a complicated business, and you can hit operational glitches.
I just copped a dose of it. I picked up a gold stock the other day when volatility rolled into the market.
It came out yesterday and said its production was lower this quarter thanks to disruptions at its processing plant. The stock dropped about 7% yesterday.
It’s annoying, but overall I am not worried. Gold not mined last quarter can be mined next quarter.
Of bigger concern is whether global central banks are suppressing the gold price using gold sales and shenanigans with the futures market.
A man I admire and trust, Professor Richard Werner, suggested such a possibility in this recent video.
Why would they do such a thing? A rising gold price is a warning signal that their policy of huge expansion in the money supply is more dangerous than they let on.
We can’t prove it, but it’s interesting to think about.
However, in the end, the global markets are bigger than the central banks.
They can only hold down a price like that for so long before they become like a lid on a pressure cooker ready to explode.
While the market seems happy to go along with the notion that inflation is ‘transitory’, I’m not so sure. So I keep exposure to gold for this reason.
However, see my experience with Gold Road Resources Ltd [ASX:GOR] as instructive. Better to spread your gold exposure across a few names to diversify against this type of single mine risk.
If that sounds sensible to you, my colleague and gold expert Brian Chu dedicates his entire focus on the ASX to the gold sector.
He just produced a report on the best five gold stocks to buy now.
Editor, The Daily Reckoning Australia
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