Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Gold rose for a fifth straight session on Thursday, reaching another nine-year high and approaching the $1,900/oz level, as rising geopolitical risks and a weakening US dollar continue to increase the metal’s safe-haven appeal.
Spot gold rose 1.2% to $1,894.70/oz by 11:45 EDT, its highest since September 2011. US gold futures for August delivery advanced 1.3% to $1,889.70/oz.
Political tensions between the world’s two largest economies escalated further on Wednesday when the US government abruptly ordered the closure of the Chinese consulate in Houston, Texas, following allegations of spying. China denied these claims and was more than displeased with this decision, vowing to retaliate if the US does not rescind the order.
Bullion has surged nearly 22% so far this year against a backdrop of a multitude of factors driving market uncertainty.
In a recent interview with Bloomberg, Joseph Cavatoni, managing director, USA and ETFs, World Gold Council, said “the two drivers of gold can be broken down into strategic and tactical.”
“In the short term, which is tactical, what we see is the price spiking and dropping, correlating with other assets … but in the longer term (strategic), we see either economic expansion or market risk uncertainty being the real strategic drivers of gold, and right now, economic expansion is clearly not what is driving the price of gold,” Cavatoni said.
“Investments, investors and central bank holdings are driving gold through market risk uncertainty; it existed before 2020 — geopolitical risks, a potential change in regime in the US, tensions with trade — all of these factors were there, but covid-19 has just amplified it, made it a lot more concerning and a lot more challenging for people. So what you see is the price will continue to trend up.”
Joseph Cavatoni, managing director, USA and ETFs, World Gold Council
“Gold as store of value has significantly enhanced so it wouldn’t be a surprise if it rises to $1,900,” said Bank of China International analyst Xiao Fu, adding that “geopolitical risks, worries about further tensions between Washington and Beijing, and ample liquidity from widespread central bank stimulus measures are driving prices.”
Supporting bullion further, the dollar index touched a more-than four-month low on Thursday. Expectations of another round of US stimulus measures amidst a low-interest environment have also helped gold, as it is largely considered a hedge against inflation and currency debasement.
“You have this wave of stimulus practically from every central bank in the world, everybody is putting out stimulus packages, easy money, loans, new debt and all of that is also bullish for gold,” Edward Meir, analyst at ED&F Man Capital Markets, told Reuters.
Indicative of investor sentiment, holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.4% to 1,225.01 tonnes on Wednesday, the highest since March 2013.
“Gold’s qualities as a diversifier in a low-rate world have shined as the US election approaches, US-China tensions flare and coronavirus concerns persist,” UBS Group AG analysts including Wayne Gordon said in a research note.
The bank raised its near-term forecast for gold to reach $2,000/oz by the end of September before paring back to $1,900/oz by year-end.
(With files from Bloomberg)
