ASX gold miners may be investors best friend during the recent market turmoil, but a number of them are fast becoming a hot favourite of short-sellers too.
Short-selling is a bearish bet against a stock and short-sellers are stepping up their attack against these shares even as they outperform the broader market by a Pilbara mile!
For instance, the Newcrest Mining Limited (ASX: NCM) share price and Evolution Mining Ltd (ASX: EVN) share prices have surged around 80%+ over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is barely up 9%.
Stocks hit with the biggest increase in short-interest
Many experts think the sector has run too far ahead and have shot past fundamental valuations. The over extension is perhaps more pronounced among the smaller gold stocks as that's the part of the market that short-sellers are upping their bets against.
In fact, three of the top five stocks that has seen the biggest increase in short interest are emerging gold miners.
Short-sellers are those who borrow stock to sell on-market in the hope of buying it back cheaper later to profit from the difference. Short-interest is the proportion of shares in a company that has been short-sold.
The stock with a biggest increase in short-interest this month is linen and homeware retailer Adairs Ltd (ASX: ADH) as the percentage of its shares falling into the hands of short-sellers surged 4.5 percentage points to 5.6% from the start of this month to 18 September (which is the most up-to-date short-selling data available from ASIC).
Gold stocks that are short-sellers' hot favourites
But in second and third positions are Resolute Mining Limited (ASX: RSG) and Saracen Mineral Holdings Limited (ASX: SAR).
Short-interest in Resolute jumped by a significant 3 percentage points to 4.7%, while Saracen experienced a 2.2 percentage point increase to 7.1%.
Meanwhile, Silver Lake Resources Limited. (ASX: SLR) took the fifth spot with the proportion of its shares being shorted jumping 154 basis points to 4.7%. Don't be fooled by Silver Lake's name – it's really a copper and gold miner.
If you are wondering who's in the fourth spot, it's mineral sands miner Iluka Resources Limited (ASX: ILU), which recorded a 176 basis point increase in short-interest to 2.6%.
What also struck me about these five stocks is that the overall percentage of shares being shorted is relatively low. This means there is more room for short-sellers to increase their bearish wager against these stocks, which will put downward pressure on their share prices.
Perhaps short-sellers are targeting gold producers because they believe the gold price is set for a correction if geopolitical tensions were to ease.
While I agree that several gold miners are looking expensive, I wouldn't want to bet against gold in this current climate.
