Should You Buy AngloGold Ashanti at This Share Price?

What happened to the AGG share price?

AngloGold Ashanti Limited [ASX:AGG] was up another 4.51% by early afternoon trading today. Within the last six months, the stock has picked up 144.43%.

Given a much lower probability for the Federal Reserve to hike rates, commodities have continued to gain. Led by the oil price, which has already breached US$51 a barrel, gold continues to benefit from the broader commodity market rally.

Why did AngloGold shares do this?

I am not ashamed to say that my own service, Emerging Trends Trader, recommended AGG at its low point months ago. It is currently sitting comfortably on a 120% gain.

However, I won’t hide the fact that I issued some warnings on the stock in February. The stock had given me a 50% gain by that time and I was expecting some kind of pullback. Yes, I was ready to offload the stock.

But that didn’t happen. The stock continued to gain over the next two months, scoring another 50% gain. No one can deny the fact that May was a shaky month for gold, with gold producer stocks broadly falling.

The arguments against a sustained gold rally were all there — the Fed, the rare outperformance by gold, and the absence of market volatility.

And now, gold is rising again, having largely shaken off the losses in May. I did mention that one supportive case for gold is the bottom in commodity prices, led by energies. That seems to be the case right now.

The Fed is unable to act due to the uncertain recovery in the US economy; there are also the still-arguably-depressed and uninspiring European and Japanese economies respectively. How can the Fed hike rates in this condition?

There is no doubt that the Fed wants to normalise rates, but it simply can’t when the data isn’t there to support its case. As a result, the USD stays supportive of commodity prices, which are benefiting gold.

What now for AngloGold Ashanti Limited?

I am somewhat embarrassed to hold onto my cautiously-bearish sentiments on AngloGold Ashanti. Of course, it is all fine for my readers since the stock is still performing. But the risk-averse side of me wants to say ‘Hey, nothing lasts forever; the higher it gets, the harder it will fall’. But it is hard to say that at this point.

Everything is very data-dependent right now. Commodities can move against gold if energy supply increases, or if demand stagnates for the year, which is a distinct possibility. Remember, commodities constitute greater inflationary pressure, which supports gold because bullion is used to hedge against inflationary pressures. And there are the economies and the central banks to consider as well.

We know the overall sentiment at the Fed is that they want to hike, but the rest of the world is simply not in a position to do that. And, arguably, global weakness feeds back to the US economy, disabling it from getting onto a path of normalisation.

As a result of all these factors, I am holding the stock for now.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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