While the market frets over stretched large cap valuations that are inflating indices, some fundies are focusing their sights on local small caps with high conviction and an outlook that their outperformance will endure.

Last year many industry funds terminated their mandates with external managers that had exposure to the smaller end of town, and withdrawals hit the $4 billion mark. The tide is now turning, with the likes of the $200 billion Future Fund re-entering the stock picking market – with a specific provision for small caps.

While suppressed valuations and liquidity have affected the entire small cap universe over the past two years, the resources sector has been particularly hit. Microcap pre-revenue junior explorers have sold off circa 50% since the start of 2022. With IPO activity almost ground to a halt, increasing M&A activity in Q2 2023 has led the number of ASX-listed junior resources companies to shrink for the first time in three years.

This setup has created potential opportunities for investors to enter the resources sector at a depressed point. This could prove particularly successful if we enter a new commodity super cycle and/or see further consolidation in the industry, particularly in gold.

Gold continues to trade around US$1,930/oz in the lead up to key US inflation data, with the American CPI due to be released overnight to a vigilant market. This coincided with the US dollar taking a little break from the tear its been on the past few months, as it slightly pulled back from its 6 months high put in last week.

Copper has also surged and caught a bit of support around US$3.80/lb as markets received positive inflation data over the weekend that showed consumer inflation turning positive again in August, while producer price inflation fell at a slower space than was seen earlier in the year.

Gold has been approaching a major pivot point where it could break through this critical level. Many industry experts have predicted a bull run, with some forecasting levels as high as US$2,600/oz. In cooperation with ausbiz, we will be featuring in a live and exclusive event this Thursday 14th September, where we will explore the drivers and outlook of the gold price and get key stock calls from high-profile experts.

This is a must-watch event for gold investors, and will also feature Lowell Resources Fund CIO John Forwood and Mine Discovery Fund MD Joseph Webb. Click here to book your spot for tomorrow, Thursday 14th September at 11am AEST.

You should only act on the information we provide if you are confident that you fully understand what you are doing. Past returns do not always indicate future returns, and it is also possible to make significant losses. There is always a risk of loss when investing.