We’re seeing record high rates of gold again this year. How are macro forces such as interest rates, inflation, and central bank policy shaping investor demand for gold?
The most prominent factors contributing to gold’s strength include:
- People beginning to lose confidence in the USD and looking to diversify their USD holdings,
- While no one wants to admit it, right now the world (maybe with the exception of China) has all the makings of stagflation written all over it. It’s not just that gold has been strong, but so are other commodities. The fi at currencies are losing purchasing power, and bank savings won’t be able to preserve the purchasing power as most of the major economies have been cutting saving rates (including China). In a stagflation environment, commodities, particularly gold, should offer more protection over some traditional financial assets.
What role does geopolitical risk play in driving safe-haven flows into precious metals?
With the Russia-Ukraine stand off coming into 3.5 years and counting, as well as the war in the Middle East, the curtains of WWIII might just have started without the mass population acknowledging it (yet), and as of today its already quite obvious which country will be standing by which side. Geopolitical risk doesn’t simply instill fear, but it can also significantly increase the cost of everything (inflationary pressure) as cost efficiency will now take a back seat to national security as ‘trust’ among different nations has become far and between.
How significant is ongoing central bank gold buying for long-term market support?
I actually think the importance of central bank buying will diminish in relative terms, and moving forward, their purchases will help to provide a floor rather than continue to offer double digit year-on-year growth. It will be the investment demand to take over the wheel and to determine how much further upside that gold has.
What sort of interest are you seeing in the junior mining precious metals space? Where is investment flowing?
I see that many companies that have projects which were questionable/subpar (i.e. low grade, lack of infrastructure, questionable management) have received great interest from the market and are now trading above US$100M market cap FD. The market now likes those projects which couldn’t make any money when the gold price was at US$2000, but that could certainly be economic at US$3800, as their profitability is highly leveraged to the gold price. In terms of geographies, Yukon has been hot (from the stock price performance perspective). Côte d’Ivoire has been a big destination for mining/exploration executives looking for discoveries. Guyana, Suriname, Kazakhstan are also some other jurisdictions that I have high hopes in for future discoveries.
Are you seeing any standout stories at the moment?
It is not actually in precious metals, but the trend that’s too good to ignore is the US government supporting domestic critical minerals projects with new policies, loans, monetary support, etc. We’re even seeing the government buying stakes in companies. We have already seen how well the share prices for MP Materials and Lithium Americas have performed (as well as others like Nova Minerals and U.S. Antimony). There is still some easy money to be made if you’re able to guess which companies will be next on the US government’s list. One particular critical mineral of interest is antimony – it’s usually is found alongside gold (or sometimes silver), so usually an antimony project could be a two (precious metals + critical mineral) for one deal.
What’s your outlook for the coming year? Any key trends we should be on the lookout for?
Everyone is talking about silver equities at the moment, but it’s actually the PGM equities that should receive more attention as a few of those are still trading at bargain levels, and you just value them like gold equities when the gold price was at US$1400/oz.
