In the wake of rampant geopolitical tensions, economic uncertainties, lingering inflation, and a heavily anticipated US election, gold has continued its status as the symbol of safety and reassurance.
The Perth Mint General Manager Depository John O’Donoghue says “gold continued its spectacular rise from Q1, with the price hitting a record high in US dollar terms in April and again in May”.
Since the beginning of 2024, the bright and dense metal surpassed previous record highs ending the first quarter at about US$2,232 ($3,375.75) per ounce.
At the beginning of the second quarter, gold reached a new all-time high of $3,511 on 3 April.
The World Gold Council says April was a time to shine for gold, which posted a 4% gain and ended the month at US$2,307 per ounce, driven by Chinese buying and central banks.
Just when the precious metal seemed to be losing its lustre, the price shot up for a third time. On 20 May, gold was sitting at $3,650 per ounce, representing a 2% increase compared to April.
In May 2023, gold fell 0.9% to US$1,964 per ounce, leaving the year-to-date return at 8.3%, according to the World Gold Council.
Today (1 July 2024), marking the start of the new financial year, the price of gold is $3,487.18 per ounce.
As Alchemy Resources (ASX:ALY) CEO James Wilson explains to Mining.com.au, “gold is doing what gold does best — acting as a barometer of uncertainty”.
“gold is doing what gold does best — acting as a barometer of uncertainty.”
It’s a sentiment echoed by Peak Asset Management Portfolio Manager Louis Varrasso who says the recent record-breaking ascent of gold can be attributed to a confluence of factors.
These factors include geopolitical tensions – marked by ongoing conflicts and trade wars – global economic uncertainties, cost-of-living pressures, and China’s stimulus measures.
“These all play a pivotal role in driving investors towards the safe-haven perception of gold,” Varrasso tells this news service.
Gold doing what it does best
The Perth Mint’s O’Donoghue says there are ongoing international events that continue to play a part in gold’s pricing moving forward.
“Including geopolitical tensions, widespread central bank buying, hedge funds purchasing gold following strong technical buy signals, and ongoing discussions about possible moves by central banks (especially the US Fed) to cut interest rates,” he tells Mining.com.au.
Tempest Minerals (ASX:TEM) Managing Director Don Smith agrees, adding that there are no surprises in terms of gold’s performance.
The uncertainty lies in what is going on in the world at the moment.
“It’s not really surprising when you look at the macro, in terms of potential for war, or there is war in multiple places, and all the threats that we have economically,” Smith says.
A notable advantage of gold’s rising price is its capacity to drive growth for producers. Higher gold prices lead to an increase in revenue, improved profit margins, and better financial stability.
Northern Star Resources (ASX:NST), which has a market capitalisation of $15.20 billion, sold 401,000 ounces of gold during the first quarter of this year, yet it expects — and remains on track — to sell 1.6 to 1.75 million ounces of gold for this financial year.
This year, the Australian gold producer has sold 1.18 million ounces of gold to date, valued at over $4.11 billion based on the price of gold today.
Yet, Smith explains looking at the rest of the market, there is “very, very limited wash combining into the junior sector”.
Small cap investors still not convinced
Another aspect of the gold market that remains unsurprising is the persistent investor sentiment towards small-cap companies. Despite record-breaking rises in the price, investors continue to show little interest in junior explorers.
Torque Metals (ASX:TOR) CEO Cristian Moreno agrees, telling Mining.com.au there is a lack of enthusiasm from investors at the smaller end of town.
“While one might expect that high gold prices would benefit all sectors within the gold industry, this has not been the case for the junior sector,” he says.
This is evidenced by news out today of Calidus Resources’ (ASX:CAI) slide into receivership. KordaMentha’s appointment as receivers follows a decision by the Calidus board to appoint Hayden White and Daniel Woodhouse of FTI Consulting as voluntary administrators on 28 June.
Until recently, Calidus had been primed for a restart of operations at its Nullagine Gold Project, unveiling a maiden resource estimate in mid-June measuring over 475,000 ounces. The company also raised $16.5 million in March.
Contributing factors reportedly included outstanding payments to contractors and the company’s hedge book, which showed Calidus was due to deliver another 78,000 ounces over the next 18 months at $2370 per ounce — more than $1,100 below the current spot price of $3,489.
Tempest’s Smith explains that the companies in the gold space that appear to be reaping the rewards are the larger producers.
“Bigger gold companies are going up because the gold price is going up and they are making more money from their production,” he says.
Whereas, Tempest Minerals’ share price, for example, has remained stagnant since the beginning of Q2. It witnessed a peak of $0.011 per share on 3 June, but is currently trading at $0.008 per share.
With Alchemy Resources also in the junior space, Wilson says the company does not see immediate direct financial benefit from the rising gold price.
Alchemy, which has a market capitalisation of $7.65 million, saw its share price fluctuate in the last quarter, trading no higher than $0.008 per share. It is currently trading at $0.006.
Small-cap companies struggle to attract investor interest while gold producers benefit — a situation illustrating that gold in fact is doing what it does best by enriching established players while leaving junior explorers behind.
However, Wilson remains optimistic saying “with a higher gold price and very mature development assets across Australia, that usually means people come knocking looking for deals on undeveloped assets — we’ve got a few, so we talk to everyone about how best to monetise those in-ground assets.”
Demand and trends
The gold market, driven by its enduring demand and evolving trends, is continuing to perform its role as a stable and valuable asset.
As the world becomes more interconnected, paired with the pace of accelerating renewable energy technologies, gold has played an increasingly critical role on the industrial front.
The World Gold Council reports that around 80 tonnes of gold is used in technology. The trend of electrification provides support for the gold sector, as most types of semiconductor chips use the precious metal as a coating or in the form of thin bonding wires.
Not only has the gold price and demand remained strong, but the World Gold Council says that has also flowed through to physically backed gold exchange traded funds (ETFs), which recorded inflows in May, ending a 12-month losing streak.
Gold ETF inflows amounted to US$529 million. The rising gold price and inflows pushed the ETFs total assets under management 2% higher to US$234 billion, the highest since April 2022 according to the gold council.
Physically-backed gold ETFs are considered an important source of gold demand, with investors using them as part of a well-diversified investment strategy.
However, the World Gold Council says the run up in the gold price will likely prompt a fall in jewellery demand, which is exactly what happened during the second quarter.
During 2023, global jewellery demand secured marginal gains from 2,089 tonnes to 2,093 tonnes, valued at US$131 billion. Yet, in Australia annual jewellery demand posted a 6% decline, with consumers facing pressure from costs of living, according to the World Gold Council.
Global jewellery demand in Q1 2024 recorded 479 tonnes, around 3% above the first quarter average of 456 tonnes, yet was weakened by 15% year-on-year in Australia.
According to the National Association of Securities Dealers Automated Quotation System (NASDAQ), about half of all demand for gold derives from jewellery.
On 13 June, the World Gold Council reported that consumer’s interest in gold jewellery had been dimmed, which led to weaker-than-expected sales during the five-day International Labour Day holiday in early May, which is normally a period of traditional demand boost.
This trend continued for the rest of May.
As a result of the declining interest in jewellery, wholesale gold demand experienced its weakest May since 2020, ending the month 34% below the 10-year average.
However, The Perth Mint’s O’Donoghue explains that stronger prices result in retail investors cashing out their holdings to take advantage of higher returns.
“This has had a notable effect on demand for our minted coins and bars over the past 12 months in particular,” he says.
In April, The Perth Mint sold 33,387 troy ounces of gold, which was welcomed by the Australian bullion seller after a sharp fall in March.
General Manager of Minted Products Neil Vance says the launch of The Perth Mint’s 2025 125th Anniversary coin collection helped drive demand in April.
“The global market for precious metals is still very volatile but we are working hard to design and produce high quality coins and minted products that have strong appeal for our loyal collectors around the world,” he says.
Helix Resources (ASX:HLX) Managing Director Kylie Prendergast says that gold is a real asset and is considered a store of value that provides protection against inflation.
“The increased gold demand and positive price movements in 2024 show very clearly there are a lot of buyers who hold these views,” she says.
One month later and The Perth Mint sold 23,238 troy ounces of gold, further continuing the trend of volatility.
“As we have seen in recent times, this instability is a global trend,” Vance says.
What’s on the Q3 horizon
Looking ahead to what the next quarter will bring, investment banking firm UBS raised its gold price forecast to an average of US$2,500 per ounce by the end of September, up from US$2,400 per ounce.
UBS expects the price to reach US$2,600 per ounce by the end of the year, and US$2,700 per ounce by the end of June 2025, as reported by foreign trade consultants Sunu Resources.
Peak Asset’s Varrasso says the UBS decision to raise its gold price forecast underscores the confidence in gold’s trajectory amidst ongoing global uncertainties.
“The surge in prices reflects a growing consensus among market participants regarding the enduring value proposition of gold as a hedge against volatility, currency, and inflationary pressures,” he tells this news service.
Price movements have been very much in the media spotlight as the gold price continues to reach record heights and will continue to be determined by several factors.
The Perth Mint’s O’Donoghue says these factors include the strength of the US economy and inflation, alongside the impact these will have on the timing of US interest rate cuts.
“The outcome of the US presidential election and the economic policies of either candidate could also have an impact on the price of gold,” he says.
The gold price dropped several times during the past quarter, demonstrating just how fast one change can impact the price. For example, gold dropped to US$2,293 per ounce on 7 June, as reported by Trading Economics, after the People’s Bank of China did not add to its gold reserves in May.
However, the consensus is as the new financial year begins gold is expected to remain cautiously optimistic.
In October last year, gold was no longer considered sexy, but by the first quarter of 2024 it seemed to have bounced back and had a new allure to it.
It appears not much has changed since the first quarter of the year as gold continues to do what it does — maintaining its reputation as a safe haven asset. Larger gold producers seem to benefit from the rising prices, while smaller companies struggle to attract investments.
Write to Aaliyah Rogan at Mining.com.au
Images: Northern Star Resources & The Perth Mint
