Video: Gold mining faces a cliff after 2025, CRU analyst predicts
Global gold production will peak at about 3,250 tonnes (105 million oz.) next year, according to CRU's Oliver Blagden.
Gold prices declined from a two-week high as investors weighed the prospects of further vaccine roll-outs against fresh hopes for a new US stimulus deal.
Spot gold declined 1.1% to $1,848.30 per ounce by 11:40 a.m. EST Wednesday, below the $1,850 support level. US gold futures were also down 1.1% at $1,853.20 per ounce.
After Britain became the first Western nation to start a mass vaccination drive, both Pfizer and Johnson & Johnson made further progress with trials and regulatory approvals respectively.
US regulators gave early indications they may grant emergency-use authorization to Pfizer’s vaccine, calling it highly effective with no safety concerns, though the UK’s National Health Service warned that those with a significant history of allergies should not receive the vaccine.
These positive health developments led investors to opt for riskier assets, with global equities reaching a record high Wednesday.
“The higher risk appetite seems to be gaining the upper hand again, and coupled with the vaccine news, it seems to be weighing on gold prices,” Commerzbank analyst Daniel Briesemann told Reuters.
The shift in risk sentiment has also pulled investors away from gold-backed ETFs and similar products over recent weeks.
Following months of record inflows for gold ETFs, November marked the first month of outflows in exactly a year, according to new data released by the World Gold Council.
These monthly outflows were the second largest ever, says the Council, decreasing by $6.8 billion (2.9% AUM), though net inflows in 2020 ($50.3bn) remain well above the highest yearly numbers.
“We’re not surprised that investors felt more optimistic on the heels of vaccine news and what seems like certainty in the US election outcome,” Adam Perlaky, manager of investment research at WGC said in a release.
“That said, 2020 has been defined by market volatility and swings in all asset classes, so will be interesting to see how gold ends its otherwise strong 2020 run in December.”
Despite recent breakthroughs in vaccine development, bullion is still heading for the biggest annual gain in a decade amid unprecedented amounts of stimulus packages to prop up economies.
The metal traditionally serves as a hedge against potential inflation resulting from large stimulus measures.
Top central banks are embarking on fresh waves of bond-buying, with the European Central Bank expected to increase its purchase plans.
In the US, the Trump administration broke a month-long standoff on Tuesday with a $916 billion coronavirus relief proposal, opening up a potential new path to a year-end deal.
“The gold price is likely to close 2020 with a notable plus, despite the sizable losses in autumn,” Carsten Fritsch, an analyst at Commerzbank AG, wrote in a note. “We do not expect a change in the ultra-expansionary monetary and fiscal policy despite the upcoming vaccinations.”
Meanwhile, the resurgence of digital currencies as a financial asset has also directed investors away from gold. “The rise of cryptocurrencies in mainstream finance is coming at the expense of gold,” says JPMorgan Chase.
Money has poured into Bitcoin funds and out of gold since October, a trend that’s only going to continue in the long run as more institutional investors take a position in cryptocurrencies, according to the bank’s quantitative strategists including Nikolaos Panigirtzoglou.
JPMorgan is one of the few Wall Street banks predicting a major shift in gold and crypto markets as digital currencies become increasingly popular as an asset class. The trend poses a problem for bulls in precious metals markets over the coming years if investors move, even a small slice, of their allocations away from gold and into crypto.
“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced,” JPMorgan strategists wrote.
JPMorgan’s calculations suggest Bitcoin only accounts for 0.18% of family office assets, compared with 3.3% for gold ETFs. Tilting the needle from gold to bitcoin would represent the transfer of billions in cash.
“If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years,” they added.
(With files from Bloomberg and Reuters)
Comments
Mnqobi Duma
Does this mean investor’s should focus on bitcoins investment?