August 15th, 2022 | 10:43 CEST
Who benefits from recession and inflation? BASF, Viva Gold, K+S
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"[...] We are convinced that we could already leverage significant potential with a drilling program of around 35,000 meters. However, to finance this, we need a decision. Fortunately, there are already interested parties who can imagine advancing Barsele together with us. [...]" Gary Cope, President and CEO, Barsele Minerals
BASF: Do not be fooled by the bear market rally
The former head of Pimco, Mohammed El-Erian, considers a recession in the US within the next twelve months to be "very high" in an interview with "Der Spiegel." The reason: central banks have underestimated inflation for too long and would now have to bring out the heavy artillery to control inflation. El-Erian is more gracious with the ECB, praising its recent admission that it had underestimated inflation and emphasizing the special challenge of the economically fragmented eurozone. With the eurozone lagging the US by several months, the ECB may be even more likely than the US to achieve a soft landing. The drop height remains high for cyclical stocks, such as BASF, which have made significant gains in recent weeks.
Although Germany is making significant progress towards independence from Russian gas, events such as Ukraine's suspected missile attack on the Russian military base in Crimea could lead Russia to take irrational measures - including a gas embargo. In such a case, even the ECB's supposed head start over the Fed would no longer have any influence - a recession would hardly be averted in the euro area either. Shares such as BASF and the entire DAX are in acute danger of retesting the lows of July. Investors should not be lured onto the wrong track by the bear market rally - at least in cyclical sectors.
Viva Gold: Project in an exciting phase
Today, the renaissance of gold is much more likely than a sustained comeback of industrial stocks. As early as July, the momentum of the interest rate hikes slowed - the market priced in the possibility that central banks might be forced to lower interest rates again as early as 2023 in the wake of a recession. In parallel, gold recovered noticeably from its lows. The Taiwan conflict and the Ukraine war are also seen as good arguments for gold. Some market participants, such as the investor magazine "Der Aktionär", even smell a crisis comparable to 2008 and therefore speak out in favor of the precious metal. While the gold price has already risen, there could still be opportunities for shares in the sector. Viva Gold, a project developer and prospector operating in the US state of Nevada, is pushing ahead with its Tonopah Gold Project and is planning a feasibility study.
The project is located in the Walker Trend, where players such as Kinross, Centerra, AngloGold and Augusta Gold have acquired projects in recent years alone. As part of the project's economic study (PEA), experts calculated an after-tax internal rate of return (IRR) of 22% based on a gold price of USD 1,400. At the end of June, Viva Gold completed a 3,000-meter drill program, with additional drilling starting in September. Initial work on a preliminary feasibility study is still planned for 2022. Viva Gold's shares are trading just under 40% below their level from a year ago. Those who want to bet on further rising gold prices and believe that the precious metal is at the beginning of a trend should take a closer look at Viva Gold.
For a long time, K+S was also considered a good stock for those who expect inflation. As a fertilizer producer, K+S benefits from rising prices for agricultural commodities and climate change - when droughts reduce yields in some regions, fertilizer has to be used elsewhere to help. In recent months, however, the share has fallen from EUR 36 to EUR 20. The hype was too great beforehand. From a one-year perspective, the share is still clearly up, but investors who want to invest in K+S should first wait for a bottom to be reached. Operationally, however, much is in order at K+S, and analysts were also satisfied following the publication of the quarterly figures.
Investors are spoiled for choice these days. However, those who like to jump on moving trains should be cautious given the fears of recession and the potential for escalation in trouble spots: Stocks such as BASF still harbour dangers. The situation looks better for K+S. Here, the fundamental trends are still intact. Gold stocks like Viva Gold can only really pick up speed. This trend is still in its infancy, but those who decide early on may be able to reap significant returns in the long term.
Conflict of interest
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