Hedge funds slash bullish wagers on gold over Trump election win
Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
Coming off a record-setting 2020, gold’s performance has underwhelmed for much of this calendar year.
A big reason is a more hawkish-than-expected stance from the US Federal Reserve, which created a high interest rate environment and reduced the appeal of the non-yielding bullion.
The promise of higher returns on other assets also coincided with the arrival of covid vaccines, a signal for economic recovery, thus tilting the market towards riskier investments.
As a result, gold prices are trading 4.9% lower year-to-date (as of December 27, 2021), paving the way for its first annual loss in three years.
Still, despite a lackluster year for the yellow metal, 2021 is rife with plenty of gold-related news for investors to digest heading into the new year.
Back in January, analysts at Bank of America already predicted that the need to replace gold reserves would be a driver for more mergers and acquisitions this year. Indeed, the gold sector delivered a slew of deals, some involving the big players.
Agnico Eagle and Kirkland Lake Gold’s C$13.5 billion merger to create a new gold giant with a $24 billion market capitalization and 48 million ounces in reserves grabbed headlines.
During a recent symposium held by the Canadian Mining Journal, Kirkland Lake CEO Tony Makuch said that this is “one of the Canadian gold sector’s most important mergers in recent memory.”
However, the Agnico-Kirkland Lake merger announced in September is likely to be “the last blockbuster M&A deal by a major in the Canadian mining sector,” according to Haywood Securities mining analyst Kerry Smith.
Another merger of note is Newcrest’s acquisition of Pretium Resources in early November. The prize of this $2.8 billion deal is the Brucejack property, about 140 km from the Australian miner’s majority-owned and operated Red Chris mine located within British Columbia’s Golden Triangle.
A month later, Kinross also looked to expand its footprint within another famed gold mining region in Canada — the Red Lake district of Ontario — with its $1.4 billion acquisition of Great Bear Resources and its flagship Dixie project.
Barring any significant developments in the final week of 2021, this would be the last significant gold M&A deal of the year.
While no billion-dollar deal was announced during the first eight months, the impact that some of the earlier M&As may have on the industry cannot be overlooked.
Agnico already had a head start in January by snapping up TMAC Resources after the Canadian government rejected a bid from China’s Shandong Gold for the Nunavut miner. In the same month, Eldorado Gold acquired QMX Gold in a friendly merger, thus significantly expanding its landholding in Quebec.
In March, Newmont made its move by acquiring the remaining stake in GT Gold in a C$393 million all-cash deal. This would give the world’s biggest gold miner full control over the Tatogga project, also located near the Red Chris mine in BC. Also in March, Australia’s Evolution Mining grabbed Battle North Gold, whose operations are based in Ontario’s Red Lake, for C$343 million.
In April, Fortuna Silver Mines announced that it would acquire the West Africa-focused Roxgold for $884 million, thus taking its operations beyond Latin America.
Also not missing out on the action is AngloGold Ashanti, which offered in July to buy the rest of Corvus Gold for $370 million to consolidate its landholdings in Nevada.
2021 also marks a milestone year for some of the world’s soon-to-be gold mines.
In October, Equinox Gold began construction at its $1.23 billion Greenstone project in Ontario, which is slated to become one of Canada’s largest gold mines, producing more than 400,000 ounces annually for the first five years.
Ascot Resources, which is developing the Premier gold project in BC’s Golden Triangle, was recently given the go-ahead to begin construction, with first production expected in Q1 2023.
Some mines have also achieved commercial production this year, highlighted by the Segilola mine in Nigeria, the first ever gold operation in the country.
Read also: RANKED: World’s top 10 biggest gold mines
Political factors remain a driving force behind a miner’s decision over some gold operations.
In the Dominican Republic, Barrick and Newmont could be forced to end their Pueblo Viejo joint venture without approval of a new tailings storage facility.
B2Gold is also at impasse with the Malian government over an exploration project near the company’s flagship Fekola gold mine.
A new law passed in Kyrgyzstan also saw Canada’s Centerra Gold lose control over its Kumtor mine, which is now a subject of international arbitration proceedings.
In the first half of 2021, the world’s top gold miners reported a 1.1% decline in production compared to last year, due to lower ore grades and mill throughput, according to analytics firm GlobalData, though it expects output to recover in the second half to keep production flat for the year.
Gold production was also exacerbated by the covid pandemic, which interrupted many operations. What the lockdowns did not affect was emissions caused by gold mining operations, as shown by a study published by S&P Global Market Intelligence.
On the demand side, the World Gold Council believes there is a noticeable trend among investors to seek out assets that have previously helped their portfolios but are less liquid. The shift towards riskier alternatives would pave the way for gold, according to the Council, given that the metal provides capital and liquidity needed during a market sell-off.
Still, with inflation pressures mounting and the possibility of multiple rate hikes, 2022 could manifest a year of recovery for the yellow-colored metal.
Analysts, including those at TD Securities remain optimistic about a potential gold rally in H1 2022.
The outlook for gold in the first quarter of 2022 is upbeat, with the main driver being inflation, which is keeping a floor under prices, said Jim Wyckoff, a senior analyst at Kitco Metals, in the latest Reuters report.
(With files from Reuters)
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Chistina Dian Parmionova
Towards sustainable mining.