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Strength in Gold

Gold’s Time to Shine

The first half of 2020 has been gold’s time to shine. The double-digit YTD gains outpaced equities and other safe-haven assets during these uncertain recessionary times. As of May 29, 2020, the S&P GSCI Gold was up 13.94% YTD. Unprecedented global fiscal and monetary stimulus measures have significantly increased sovereign debt levels, leading to concerns of currency devaluation.

Historically, such environments have been constructive for gold as a globally recognized store of value. Low to negative global real yields and gold’s low correlation to other assets add to the positive catalysts in the current environment.

Gold Miners' Q2'20 Defined by COVID-19, Strong Prices and M&A Activity

A few themes have emerged as June winds down and gold miners prepare to release second-quarter earnings results, including mergers and acquisitions by Chinese companies, strong gold prices, and the impact of COVID-19 on operations.

In the second quarter of 2019, the price of gold largely traded between US$1,300 per ounce and US$1,400 per ounce. But with investors flocking to the metal as a safe haven asset in 2020, gold was selling for over US$1,700 per ounce in the second quarter of 2020 and recently approached US$1,800 per ounce.

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A U.K.-based human rights watchdog is calling on The London Bullion Market Association to suspend the certification of a gold refiner used by some of the largest companies in the world, saying the refiner failed to adequately investigate allegations of human rights abuses at one of its source mines.

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Gold's Future

H1 Global Gold ETFs Smash Records, Inflows Hit $39.5 bil: World Gold Council

Gold flows into Exchange Traded Funds have had a record year-to-date so far, with first half global net inflows touching $39.5 billion, crushing the previous full year record of $23 billion in 2016, industry lobby group World Gold Council said July 7.

Gold has been in the spotlight throughout 2020 as the coronavirus pandemic, and the resulting economic fallout, has pushed investors toward safe havens. Gold was spot bid in London at 1240 GMT around $1,777/oz.

Some are now forecasting that the metal could be due to break all-time highs and head toward $2,000/oz.

Gold on Course for $2,000 Plus in 2021: TD Securities

With the global coronavirus pandemic resulting in sharp drops in world commodities markets, TD Securities' global head of commodity strategy Bart Melek said he continues to be extremely positive on gold, with the yellow metal potentially reaching $1,800/oz sometime this year.

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Gold Stream on Ivanhoe's Platreef Might Sell for Up to US$900M, Analysts Say

Analysts highlighted the potential for Ivanhoe Mines Ltd. to raise about US$500 million to US$900 million through a gold streaming deal to fund ongoing development of its 64%-owned, polymetallic Platreef project in South Africa, after the company outlined plans to speed up its path to production and touted increasing interest from possible financiers.

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Gold vs Other Metals

Metal Price Assumptions: Gold Shines, While Slow Recovery Flattens Other Metal Prices

S&P Global Ratings again raised its near-term price assumptions for gold and made minor adjustments to other base metals such as copper, iron ore, zinc, and aluminum. We also cut our base-case price assumptions for coal.

With the Western World still in different stages of lockdowns, and the Eastern World emerging from theirs but still far from resuming full-blown industrial production, most metal prices are struggling to recover to pre-COVID-19 levels.

Key Takeaways

  • We lowered our aluminum price assumptions by $100/ton through 2022 and our zinc price assumptions by $100/ton through 2021. These changes represent 6% and 5% drops, respectively.

  • We also lowered our near-term price assumptions for metallurgical and thermal coal due to lower demand.

  • We raised our gold price assumptions to $1,650 per ounce for the rest of 2020 because we believe gold prices will benefit from uncertainty about the global economic outlook and a weaker U.S. dollar.

Market Challenges

Gold Takes a Breather, Market Predicts Higher Prices

The gold price is taking a breather, with eyes on what it will take to propel the metal higher as investors move money into riskier asset classes, sources said June 4.

Gold had been on a stellar run higher throughout 2020, bolstered by the coronavirus pandemic and associated panic as allocations moved into safe-havens. However, since countries have started to ease lockdown measures, and some form of new normality has emerged, traders have been parking their money elsewhere.

Still, the move is leaving some scratching their heads, as central governments pile on debt in the form of a tsunami of fiscal stimulus.

A Decade of Underperformance for Gold Discoveries

Our annual analysis of major gold discoveries has identified 278 deposits discovered over the 1990-2019 period containing 2,194.5 million ounces of gold in reserves, resources and past production. There are no major gold discoveries on our list in the past three years, and only 25 in the past decade. The lack is driven by exploration focusing on older discoveries and later-stage assets.

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African Mines

Barrick Resumes Gold Concentrate Exports from Tanzania

Barrick has restarted its shipment of gold concentrate from Tanzania, having paid the first tranche of the $300-million settlement it agreed with the Tanzanian government to resolve the disputes it inherited from Acacia Mining, the company said May 25th.

"In terms of its framework agreement with the government, the shipping of some 1,600 containers of concentrate stockpiled from Bulyanhulu and Buzwagi resumed in April and the first $100 million received from the sale has gone to the government," the company said in a statement.

Barrick – the world's second largest miner – said all material issues had been dealt with or were being finalized, adding that the initial payment will be followed by five annual payments of $40 million each.

AngloGold Suspends Operations at S Africa Mponeng Gold Mine on Coronavirus

AngloGold Ashanti has suspended operations at the world's deepest gold mine, Mponeng in South Africa, after having identified 164 positive cases of coronavirus, the majority of which were asymptomatic.

"As a precautionary step, and after discussions with the regulator, operations at Mponeng Mine – which were running at 50% capacity -- have been temporarily halted on a voluntary basis, to complete contact tracing and to again deep clean and sanitize the workplace and key infrastructure," the company said in a statement late Sunday.

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Rise in Price

Gold Hits All-Time High, Eyes $2,000/oz

The gold price has hit an all-time high and is now eying $2,000/oz as the world contends with a growing number of coronavirus cases and ballooning government debt worldwide, causing demand from physically backed exchange traded funds to soar.

"Gold roared out of the gates this morning, opening more or less where we closed and sharply ripping to $1,910/oz" analysts at precious metal refiner MKS PAMP said July 27.

"Gold pushed higher shortly after the SGE open and took down the previous all-time high [$1,921/oz] without breaking a sweat. Momentum buying then started to pile in and the metal ripped again to the daily high of $1,944.10 before dropping back through $1,930 just as quickly."

Gold Price Hits Highest Since 2012, Eyes $1,800/oz

The gold price tested fresh highs on April 14th after the Easter break as the wider market continued to seek safe havens from the economic fallout from the continued coronavirus pandemic with some now expecting it to hit $1,800/oz.

Gold was spot bid around $1,740/oz as of 1500 GMT, an eight-year high, up around $80 from a week earlier.

As the world teeters on recession caused by the coronavirus pandemic investors are seeking ways of hedging losses, one of them being buying gold futures.

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Economic Opportunity

Golden Eye of the Storm

Much has been made of the relative performance of gold since the start of the global COVID-19 pandemic. The S&P GSCI Gold gained 10.2% YTD through April 7, 2020, highlighting its safe-haven status; however, it is worth reviewing this performance and considering what demand drivers may influence gold prices over the coming months.

Race for Russia's Fourth Largest Gold Miner Heats Up as Gold Price breaks record

Three major shareholders are locked in a conflict over the control of Petropavlovsk, the company ranking in Russia's top five gold producers, putting its ownership and premium listing status at stake.

The shareholders are: Prosperity Capital Management, which owns 20% of Petropavlovsk, Everest Alliance, with 7.5% stake, and Uzhuralzoloto Group of Companies, or UGC, which holds 22.7% of stake plus convertible bonds worth 5.97% ownership.

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Gold Set Up for 'Tsunami' of Sales Once Economies Reopen: RAK Gold

A "tsunami" of secondary gold supply is ready to hit the market once global economies get back to normal, Jeffrey Rhodes, principal consultant of RAK Gold, told a webinar on May 19.

The secondary gold supply hasn't hit the market yet even with gold at a seven-year high, John Reade of the World Gold Council, said in the Dubai Multi Commodities Center webinar on how precious metals have been affected by COVID-19.

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Market Volatility

COVID-19 Impacts To Metals Prices: Volatility Is Here To Stay - Part 2

While the gold price dropped mid-March along with those for most other commodities and markets, it has since come back strongly on the back of higher financial investment demand. Meanwhile, silver, despite record retail investment, has sunk to its lowest price in 11 years due to lower industrial demand.

Looking at the platinum group metals, or PGM, lockdowns in South Africa and plummeting global auto sales have severely shocked prices. This disruption has kept an uneasy balance, however, and has not yet fundamentally changed the price trajectories of upward for palladium and rhodium, and downward for platinum.

Pandemic Expected To Push Exploration Budgets 29% Lower In 2020

As the coronavirus crisis continues to weigh on markets and propels many countries into full or partial lockdowns, planned exploration spending for 2020 will likely be pushed downwards. With junior explorers unlikely to see much support over the next several months, this sector will be the hardest hit, with allocations forecast to decrease 42%.

Producers will not be spared, as they face lower metals prices and country-wide closures in areas in which they operate, sending their budgets an estimated 23% lower. As a result, we now expect global exploration budgets to fall 29% in 2020 to a total of US$6.9 billion.

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Transition Between Quarters

Analysts see strong Q1'20 gold prices boosting earnings despite coronavirus

Analysts expect strong gold prices to bolster gold mining earnings in the first quarter of 2020, with coronavirus-related mine suspensions mostly weighing on earnings in the second quarter.

In the first quarter, the price of gold climbed and closed at US$1,612.10 per ounce on March 31, up from US$1,520.50/oz on Dec. 31, 2019. While gold prices dropped in mid-March, closing at US$1,475.03/oz on March 19 amid a broader rout in stock markets, the yellow metal recovered relatively quickly as investors sought safe-haven assets.

Mining Exploration Insights – May 2020

With disruptions to mining operations now appearing to be less severe than some had initially feared, mining equities recovered somewhat in April, as S&P Global Market Intelligence's aggregate market value of the industry's listed companies, based on 2,331 firms, rose 18% month over month to US$1.24 trillion.

The aggregate market cap of the industry's top 100 companies was up 17% in April at US$1.05 trillion. The number of tracked mining companies remains at a 10-year low, declining steadily from a high of 2,921 companies in March 2012.

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COVID-19 Impact

Geopolitical Uncertainty in Wake of COVID-19 May Give Gold Time to Shine

The world is entering a period of deep geopolitical uncertainty, but that could be good for gold prices, industry observers said in presentations to the World Gold Forum. Presenters and attendees logged on to the virtual conference starting April 20 to discuss the gold industry and the COVID-19 outbreak that has roiled global markets and drove the event online. While gold has largely proved its ability to store value through the turbulent market conditions created by the coronavirus, there remain a lot of unknown risks to the sector.

Mining Exploration Insights - April 2020

Mining equities were not immune from the worldwide sell-off in equities due to mounting fear of the coronavirus that began toward the end of February, as S&P Global Market Intelligence's aggregate market value of the industry's listed companies, based on 2,333 firms, was down 16% month over month at US$1.06 trillion, off 29% from a 19-month high of US$1.49 trillion in December. It was the lowest aggregate market value for the sector since May 2016.

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