Should You Buy St Barbara Ltd at this Share Price?

By ,

What happened to the Santa Barbara Ltd share price?

the St Barbara Ltd [ASX:SBM] share price picked up another 2.35% in today’s trading. The broader Aussie market was marginally up after some reflation in commodity prices overnight. Year-to-date, SBM has picked up more than 50% in gains, vastly outperforming some of the other stocks in the Aussie stock universe.

Why did SBM shares do this?

SBM is a gold producer, so its stellar performance should not come as any surprise to investors. If you don’t know what I just referred to, then you should take a look at the performances of all gold producers in 2016 so far.

Gold producers have been able to track the dramatic rise in gold price, amplifying the price increase in the precious metal several fold. There is no denying it, SBM is a momentum stock, and it makes complete sense for momentum traders to include it in an active trading position.

The question is: ‘how high will gold go?’ The answer lies in two key factors concerning gold. One is its long term correlation with the commodity basket; the second relates to the short term inverse relationship between gold and the stock market.

One can argue that the commodity basket has reached a bottom of sorts. That means it is likely to reflate over time, which supports the price of gold over the long term. On the other hand, renewed volatility in the stock market can greatly boost the performance of gold and gold-related stocks. The harder question here is, ‘has gold gone too high?’

What now for Santa Barbara Ltd?

For the momentum traders, it almost does not matter what the fundamentals say. If the stock is on a run, then that’s enough reason to include it temporarily. For the fundamental investors out there, the question is more complicated.

I argue that gold is, in fact, too high at the current price, due to the inflows in the first quarter. It can suffer a setback, or at least a flat period. However, there is no rule to prevent the stock market from creating volatility again, which means there is leg in the momentum of gold. That can only prolong the gain of gold and the eventual settling down of its price.

In the long term, there is support for the precious metal. This means I am bullish on gold over the long term, but very cautious on it in the short term.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

About Money Morning

At Money Morning our aim is simple: to give you intelligent and enjoyable commentary on the most important stock market news and financial information of the day - and tell you how to profit from it. We know the best investments are often the hardest to find. So that's why…

Why the ASX Is Down Today: Gold Price, Gold Stocks Rise 

Tech sector down, gold miners up – that’s the theme today as the US-China trade war boils over.

St Barbara Share Price Adds Insult to Injury, Plummets 15%

St Barbara share price was slashed by nearly 30% in March when the company announced disappointing results of its feasibility study at its Gwalia Mass project. Since the beginning of the year, the miners shares have has tumbled almost 40%.

St Barbara Share Price Plunges on Update, FY19 Guidance

The latest news out of the company is an update centred on a feasibility study for the ‘Gwalia Mass Extraction’ project and lowered FY19 guidance at its Gwalia operation.

Resolute Mining’s Share Price Soars 5.94% as Gold Continues to Rise

On what was expected to be another disappointing day for the ASX, the index has instead made impressive gains in the opening hour of trade. Leading the charge is Resolute Mining Limited [ASX:RSG], up seven cents, or 5.94%, to $1.16 per share. The move comes…

Regis Resources Share Price Up 5.00% as Gold Price Firms

Regis Resources’ share price is up 5.20% since trading began this morning. It’s currently trading at $4.62, up 22 cents. The move comes as the gold price regains its momentum as investors begin to steer away from a battered global equities market.

Gold Miners Off to Strong Start, St Barbara Share Price Rockets 5.64%

The St Barbara Limited [ASX:SBM] share price is off to a racing start this morning, climbing 5.64% on the back of gold and silver gains. The shares are trading at $3.56 at time of writing. While not all gold producers have managed to push higher this morning, Evolution Mining Ltd [ASX:EVN], Saracen Mineral Holdings Ltd … Read More