Gold Investor Roundup: Analysis of the Week’s Most Important Events (March 20th, 2020)

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Saxo Bank: Long-term case for gold strong despite bad few weeks

Bottom Line: Amid gold’s failure to rally these past few weeks, Saxo sees parallels with the 2008 financial crisis – when gold initially suffered a 27% sell-off to $725/oz before rallying to $1920/oz within three years. Noting that the U.S. 10-year real yield, which typically has an inverse relationship with gold, has risen sharply during the past week, Saxo said this direction is unsustainable and that yields will eventually move back into a deeper negative territory. It also noted that the cost of fuel, which accounts for 20% of mining cost, has collapsed, meaning gold miners are not suffering to the extent the drop in gold would imply.

Source: Saxo Bank.

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IHS Markit sees gold prices falling to $1,300/oz – and possibly even lower

Bottom Line: In contrast to Saxo’s bullish stance, IHS Markit sees gold prices falling to $1,300/oz in the second half of the year as investors continue to hoard cash. Speaking to Kitco, precious metals analyst KC Chang said that if economic projections continue to weaken, gold prices could even fall back to 2015 lows of around $1,050/oz. With five-year inflation expectations likely to drop as low as 1%, there is no real urgency to buy gold, Chang said. While there may be some upward price volatility in gold as a safe-haven asset, many retail and professional investors will struggle to find the capital to buy gold, he said.

Source: Bloomberg.

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Kirkland Lake Gold announces share repurchase plan, doubles quarterly dividend

Bottom Line: Kirkland Lake Gold rose 14% in the week to Thursday close following a double dose of good news. It announced the repurchase of 10.1 million common shares for C$470 million (around $330 million) as part of a goal of repurchasing 20 million common shares in the next 12-24 months. Separately, it announced a quarterly dividend payment of $0.125 per common share, a 100% increase from the previous dividend. CEO Tony Makuch said the decision to double the dividend reflects the strength of the company balance sheet and the ability of its three cornerstone assets – Macassa and Detour Lake in Ontario and Fosterville in the state of Victoria, Australia – to generate significant amounts of free cash flow.

Source: YCharts.com.

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Newmont ramping down Peru operations due to coronavirus restrictions

Bottom Line: Newmont , the world’s largest gold producer, will ramp down operations at the Yanacocha mine to comply with Peru’s stringent coronavirus restrictions. Newmont owns 51% of Yanacocha, with Compañia de Minas Buenaventura (44%) and the International Finance Corporation (5%) holding the remainder. It produced 527,000 ounces in 2019, roughly 8% of Newmont’s consolidated gold production. Peru accounted for 4% of all global gold mine production last year, according to the United States Geological Service.

Source: YCharts.com.

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Barrick announces plans to make Veladero a Tier One mine

Bottom Line: Barrick Gold , the world’s second-largest gold producer, has extended the life of the Veladero gold mine in Argentina to at least 2030 following a comprehensive review, CEO Mark Bristow has announced. Speaking by video conference to Argentinian stakeholders to comply with Covid-19 travel restrictions, Bristow said the move would make Veladero a Tier One mine. Barrick defines a Tier One mine as one that produces in excess of 500,000oz of gold per year and has a life of at least 10 years. Veladero, a 50/50 joint venture between Barrick and Shandong Gold, produced 548,000oz gold last year, half of it attributable to Barrick.

Source: YCharts.com.

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Agnico Eagle, Sabina suspend Nunavut operations over coronavirus

Bottom Line: Agnico Eagle has withdrawn personnel from the Meadowbank gold-silver mining complex and Meliadine mine – which together account for around 430,000oz annual gold production – as well as exploration projects for at least four weeks. The decision came one day after residents of the Nunavut community of Rankin Inlet blocked the road to Meliadine over coronavirus fears. Separately, Sabina Gold & Silver Corp. has deferred a drilling program at the Back River Gold project after determining that if an employer or contractor were to fall sick from the coronavirus, the remote location would make it difficult to provide adequate health care.

Source: YCharts.com.

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Junior makes major gold discovery in Australia’s iron ore-rich Pilbara region

Bottom Line: De Grey Mining has confirmed major gold discoveries at its Hemi prospect in Western Australia’s Pilbara, a region known for having one of the world’s largest concentrations of iron ore reserves. In its latest announcement De Grey announced a 30m wide gold zone to 130m depth with grades in excess of 8g/t. This correlated strongly with results from previous weeks. De Grey Mining operations manager Andy Beckwith said the scale of the discovery had never been seen before in the Pilbara. De Grey has risen 380% since Feb. 3, when it began announcing drilling results.

Source: YCharts.com.

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Market Recap and Outlook

It was a challenging week for gold miners, as it was for the gold price. The VanEck Gold Miners ETF ($GDX), which measures the performance of the largest gold miners, fell approximately 5% since Thursday close last week. The gold price fell 6.7% in the week to Thursday close, ending at $1,471/oz (before gaining back some ground at the start of Friday trading). In the same five-day period, the US Dollar Index, which typically has an inverse relationship with gold, rose 5.4%.

Source: YCharts.com.

Meanwhile, fund managers’ net-bullish positioning in gold futures fell modestly last week, with a bigger drop expected when the Commodity Futures Trading Commission releases figures late Friday Eastern Time.

The consensus view is that gold has lost its status as a safe-haven asset as investors hoard cash amid dismal economic data and the spread of the coronavirus. Gold rallied for a short time on Monday after the Fed’s emergency one-point rate cut, but soon succumbed to bad news including the largest-ever drop in the Philadelphia Federal Reserve’s manufacturing business outlook.

Until last week, gold had managed to avoid the meteoric falls suffered by most other metals amid panic over the coronavirus. The big question now is: will gold regain its status as a safe-haven asset in these terribly uncertain times? As the first two items in this roundup show, analysts are split on the answer to that question.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Nadav Shemer
Nadav Shemer is a writer, researcher, and analyst specializing in mining, energy, innovation, and consumer finance. While at Mining Journal, he compiled the publication's inaugural list of the world's top 100 mining companies by revenue and reported on visits to mine sites in the U.S., Africa, and Europe. He has also worked at FCBI Energy, where his publications included a series of white papers on decommissioning of North Sea oil rigs and reports on petrochemicals construction costs. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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