Interview: Gold price could fall back as COVID-19 epidemic slows: Gold Fields

Gold, which hit a seven-year high at $1,689/oz on Monday, could see its price fall back as the spread of the COVID-19 epidemic slows down, Gold Fields Vice-President of Corporate Affairs Sven Lunsche told S&P Global Platts in an interview.

"It has a short-term impact, undoubtedly, so we know when the virus figures suggest the epidemic is spiraling out of control, the gold price went up sharply. Trade wars will also have an impact in adding to the sentiment of global economic uncertainty," Lunsche said.

"But these trends are likely to be more of a short-term nature, and the price could come back as the virus epidemic numbers slow down. Certainly, you can't plan your business around the current heady levels of the gold price. That would be foolish and very short term."

On Monday, gold rallied toward $1,700/oz as investors moved out of equities and into safe havens such as gold amid concerns about the spread of the coronavirus to Italy, South Korea and Iran over the weekend.

"I'm not a medical expert so I don't know how much further the virus has to run – if it gets worse, sentiment will undoubtedly favor gold and gold stocks as safe haven investments," Lunsche said. "But, as I have said, if the pandemic slows the gold price will undoubtedly retreat again – by how much we don't know."

The gold spot price, as of 1400 GMT Tuesday, stood at $1,650.45/oz.

Johannesburg-listed Gold Fields, which has operations in South and Western Africa, the Americas and Australia, saw full-year 2019 gold production rise 8% year on year to 2.195 million oz, beating the upper end of its guidance range of 2.130 million-2.180 million oz.

OVEREXTENDED RALLY?

On the subject of the yellow metal's current bull-run, and whether it is potentially over-extended, Lunsche said there was the need to be very cautious when talking about the gold price as "we've been on the wrong sides a few times."

"These are politically and economically very uncertain times and that will provide an underpin for the price and temporarily push it to higher levels," the vice-president said. "Longer-term though we find a greater correlation between the gold price and economic fundamentals, such as movements in the US dollar and US interest rates."

Lunsche believes the current short-term boost in the price – as a result of the Coronavirus scare – may not be sustainable but levels below that appear quite stable given wider economic and political uncertainties.

Aside COVID-19, global politics or economics, and sometimes both, are considered by the industry as key factors in terms of the biggest support for gold.

Lunsche pointed to a combination of global and US economics and wider global political uncertainty.

"We have found over the years, and this is backed up by a lot of gold advisers and researchers, a close correlation between movements in US interest rates and the gold price," he said. "There are obviously other issues as well. What we haven't found is a direct impact of gold supply and demand fundamentals with the price – longer-term yes but not in the short-term."

POLITICAL UNCERTAINTY

Lunsche believes many of these issues are priced into gold values, as the industry has seen a run in the price over the past few months.

"This includes past political curve balls like the Trump presidency, Brexit, conflict in the Middle East, among others. The coronavirus certainly isn't priced in," he said.

"US elections could also be a new variable in the months leading up to November's election date. But while many factors may be priced in, political upheaval and uncertainty does provide an underpin for the gold price and downside risks are lower."

Lunsche added that it was difficult to say if a correction in the gold price was on the cards.

"I don't see it coming over the next few months but gold has had a good run, and there could be some correction, purely based on technical factors and profit-taking," he said.

Lunsche said if suddenly global political stability were to return, with the US back in all the international forums, a sound settlement between the EU and Britain, the trade wars resolved, among other things, then there could be greater downward potential for the gold price.

"But I don't see that happening," he said. "But then again, we didn't expect such a large upturn either – so you never know."