Miners are Optimistic on Gold, but Does the Market Have Other Ideas?

• Gold miners are bullish that conditions are emerging for gold to finally breakout
• Treasury yields remain high, hammering bullion back to the fraught US$1900/oz mark
• RBC predicts iron ore to enter big surplus as Chinese production curbs loom

Last week’s Diggers and Dealers Mining Forum was all about lithium, rare earths and transition metals with the biggest stories from the sidelines of the annual talkfest firmly focused within the realm of electric vehicles.

Peep our experts’ picks and with a couple of exceptions hot lithium, rare earths and niobium plays loomed large.

READ: MoneyTalks: Four tier 1 rare earths projects primed to ride the cycles

READ: MoneyTalks: Niobium, gold, lithium and the stocks lighting up Canaccord Genuity analyst Tim Hoff’s life at Diggers and Dealers

That didn’t stop gold producers taking a bullish stance on the precious metal heading into a 2024 which could see the rate rises that have prevented a breakout thus far subside.

“I think the gold story is compelling. It’s a store of value and as people think about their portfolio, it is an alternative to the US dollar,” Evolution Mining executive chairman Jake Klein said on the sidelines of the conference in Kalgoorlie, where the discovery of the Golden Mile in 1893 sparked Australia’s largest and most enduring gold rush, drawing thousands of people to Australia and WA.

“Everyone seems committed to the US dollar up to now but if you think about the decoupling of the world … I think people will be looking for alternatives to just the US dollar. It will be gold.

“If you think of some of the things that are likely to happen over the next 12 to 18 months, there’s a US election which seems highly competitive and polarised. China’s economy is front and centre of headlines in newspapers. The war in Ukraine is continuing so there are plenty of things that are likely to cause people concern over the next 12 to 18 months.

“I spoke about the correlation between the US debt and the gold price, which over a 50 year period has proven very strong and with the amount of spending that’s happening in the Inflation Reduction Act, with the level of inflation, US debt is going higher.”

At the moment equity valuations are lagging the gold price, something that could see more consolidation in the sector like last week’s announced takeover of Tanzanian gold developer OreCorp (ASX:ORR) by Canada’s SilverCorp Metals.

“I think people are always desperate to get ounces to grow production,” OreCorp MD Henk Diederichs said.

“That’s the core of any business, you have to replace ounces. And so to that end, I think we’ll continue to see some consolidation. We have to, there’s not that many new projects to be discovered.”

Gold price flirts with US$1900/oz

And while the projections may look tasty, the past week has been a rough one for gold bulls.

Prices which rose above US$2000/oz in April and threatened the magical number again in July have hit a ceiling again.

They threatened to fall below US$1900/oz in a leg down that could prove tough for bullion holders.

“Gold prices are falling as real yields continue to rise. ​ Gold could be stuck in the house of pain a little while longer if the bond market selloff does not ease,” OANDA senior market analyst Ed Moya said.​

“The 30-year Treasury yield rising above 2% is a big red flag for some traders. ​

“We haven’t seen yields on the 30-year at these levels since 2011, which is making non-interest bearing gold less attractive even as China’s property market rattle markets.”

The ASX All Ords gold sub-index is down almost 12% over the past month, wiping out strong gains seen through the first half of the year.

YTD the index is up 8.68% after a 1% drop today.

Billions wiped on China woes

Billions were wiped off the value of the ASX materials sector as some big economic misses out of China weighed on the Australian market.

Nickel hit a 2023 low, falling beneath US$20,000t for the first time this year, while other base metals all fell.

Iron ore remains a touch above US$100/t, with strong steel production numbers keeping prices strong, though continued high crude steel output could mean emissions related cuts through the latter part of 2023 with China aiming to keep output below 2022 levels.

BHP (ASX:BHP), Fortescue (ASX:FMG) and MinRes (ASX:MIN) were among the worst performing large caps, each copping a more than 3% hit to their shares.

RBC Capital Markets London mining analyst Tyler Broda predicted in a note today that iron ore would fall back to cost support levels of US$80/t by year’s end and US$75/t in 2024 as production curbs sent the market into a 78Mt surplus in the fourth quarter and 133Mt surplus by 2024, around 6.3% of the global market.

That will peak at over 11% in 2026, Broda estimates, with the Simandou project’s forecast 2027 entry to the export market potentially sending prices back to US$75/t long term.

Monstars share prices today:

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