Finimize - 🔀 Swerving stocks

What’s going on here?

Gold titan Newmont has struck a deal to acquire its rival Newcrest, signaling a major shakeup in the industry.

What does this mean?

It’s not exactly gold miners’ golden era right now: firms are grappling with stagnating production, thanks to hard-to-mine deposits and rising costs – and even titans like Newmont have felt the pinch. Those pressures saw the company make a bid for its Australian rival Newcrest back in February. And when that proposition fell on deaf ears, Newmont made a more enticing offer, capturing Newcrest’s attention with a deal worth nearly $20 billion – a 30% premium on Newcrest’s value before this all started. If the move gets regulators’ green light, it's set to become the biggest deal ever in the gold sector, meaning Newmont – already the world's biggest gold digger – will produce almost double the shiny stuff its closest rival can.

Why should I care?

The bigger picture: Copper-bottomed deal.

Mind you, this isn’t just about gold. The deal also gives Newmont access to more copper, meaning the firm’s getting its hands on one of the key ingredients in the green energy transition. Rivals Rio Tinto and BHP have made similar moves lately – and this mega-deal could spur even more dealmaking in the mining sector. See, Newmont will need to get leaner and more efficient to make good on its $500 million annual synergy promise – and that could mean auctioning off mines that are too old or small to scale up.

Zooming out: Golden opportunity.

With all the recession fears and banking tremors, it’s no wonder that gold – a key safe-haven asset – is trading near record highs right now. That luster’s only brightening these days too, thanks to worries about the US debt ceiling. And while the country’s unlikely to actually default on its loans, gold’s well positioned to benefit from the kerfuffle in the short term.

What’s going on here?

Investors have got the jitters about stock markets right now.

What does this mean?

Let’s face it: there’s not much to feel optimistic about these days. Inflation’s gone nowhere, interest rates are squeezing the already sluggish economy, and a wobbly banking sector’s threatening to bring the whole house of cards tumbling down. It’s no wonder, then, that investors are shying away from stocks. Data from S&P Global Market Intelligence shows that, in the past year, institutional investors have sold $330 billion more in stocks than they’ve bought, while retail investors yanked out $28 billion. Follow that money, and its trail seems to lead to safer investments with decent returns – like money markets, which ballooned to a record-breaking $5.3 trillion in assets last week.

Why should I care?

For markets: Opposing opportunity.

The situation might look bleak, but some pundits think the gloom’s hiding a tempting opportunity. These folk see the markets’ pessimism as a “contrarian indicator”, a sign to zig when others zag – like Buffett’s famous “be greedy when others are fearful” mantra. See, with a mountain of cash on the sidelines, there’s less room for money to be pulled, which could limit losses. Plus, the slightest glimmer of good news might tempt folk to pour cash back into markets, lifting share prices once again.

For you personally: Tread carefully.

Before you dive headfirst back into stocks, remember that there are still plenty of risks out there – and indicators like these might be jumping the gun on calling a rally. If you are planning to put some cash to work, though, stay disciplined, think long-term, and brace for potential turbulence. That’s doubly true for anyone picking individual stocks, with even professional active fund managers struggling: after all, only about a third of them managed to outperform their benchmarks – usually big indexes like the S&P 500 – last quarter.