The price of gold went above the psychological threshold of $ 1,900 an ounce today, aided by a weaker greenback and growing concerns about inflation after Federal Reserve officials maintained a dovish stance on rates. The price of the yellow metal is currently rising 0.68% to $ 1,910.85 an ounce, the highest level since the beginning of January. Palladium was also up (+ 0.73% to $ 2,809 an ounce), silver (+ 0.72% to $ 28.25) and platinum (+ 0.85% to $ 1,207).
“This is an inflation hedge right now,” Stephen Innes, managing partner of SPI Asset Management, told Reuters. “Even if inflation is high, the Fed will be very, very accommodating. What really matters for gold is the real front-end rates. The Fed will continue to keep front-end rates low, which weakens the dollar. and gold is doing pretty well. ”
Gold, often used as a hedge against inflation, has benefited from recent macro data showing rising prices in the US and UK. Fed Vice President Richard Clarida assured yesterday that the US Central Bank will be able to curb an explosion of inflation, should it occur,
Gold’s response to changes in US Treasury yields continued throughout April; on the 22nd, prices reached a monthly high of $ 1,798 an ounce, while 10-year yields simultaneously dropped to a monthly low of 1.53%. At the end of the month, yields reversed from their lows and gold fell to $ 1,770.55, closing with a gain of $ 63.55 (3.6%).
Gold stocks rallied higher than gold, while the Nyse Arca Gold Miners Index and Mvis Global Junior Gold Miners Index ended the month up 7.1% and 7.4% respectively. “The senior / major gold companies outperformed gold since mid-March and on April 15 the Nyse Arca Gold Miners Index exited the bearish trend. Since January, the outflows on the VanEck Vectors Gold Miners Ucits Etf have also reversed course,” he said. noted Joe Foster, VanEck’s Portfolio Manager and Strategist. “While more evidence is needed to confirm the breakout, ie a more persistent and positive performance, we believe the dynamics of gold stocks may reflect the end of the steady correction in the gold price seen recently,” Foster said.
On the other hand, the US dollar index did not improve over the month, despite the latest changes in yields and the positive results of the economic indicators related to manufacturing, employment, retail sales and consumer confidence. “The decline in the DXY in April indicates that the dollar, after having shown great resistance since the beginning of the year, has come to a halt,” continued VanEck’s Portfolio Manager and Strategist.
In its first 100 days, the Biden administration launched a $ 1.9 trillion pandemic recovery plan, a $ 2.2 trillion infrastructure plan, and a $ 1.8 trillion US household plan. “The weakness of the dollar could be a reaction to deficit spending and tax tightening plans that are unprecedented in history. Over the past year, the gold market has been driven by Treasury yields, while the dollar has done so. as a co-driver. However, if it continues to decline, the greenback could become the main driver of gold again, “Foster predicted.
The same demand from central banks is recovering. The World Gold Council reported that central banks’ net purchases of gold exceeded 95 tons in the quarter. “This surprised us, given the absence of China and Russia from the buyer market and the low demand from central banks after the outbreak of the pandemic,” Foster said. Most of the purchases are attributable to India, Kazakhstan, Uzbekistan and Hungary. In a press release on April 7, the Hungarian National Bank said: “The need to manage the new risks generated by the pandemic also had a major impact on the decision. The surge in public debt on a global scale and inflationary fears amplify the crisis. importance of gold as a safe haven and store of value in
We believe that the lack of constant buying by China and Russia explains why the World Gold Council has defined central bank demand as “consistent and sporadic buying and selling”. Nonetheless, many countries continue to deem it necessary to increase reserves, while the overall demand of central banks seems to be returning to pre-pandemic levels “, said the expert.
The fact remains that gold has corrected from its peak of $ 2,075 an ounce in August 2020. “In our view, the price dynamics have formed a pennant-like pattern, a term used in technical analysis to describe the continuous trend of a stock towards consolidation, followed by a breakout. This situation will last until the summer, when gold stops its path by settling above current levels, ie strengthening, or below, ie weakening “, Foster predicted, noting that in March gold successfully tested the base of an uptrend with a double bottom and is now in the middle of the pennant where the base is around $ 1,700 and the higher level is $ 1,870.
“If the rise in US bond yields has run its course and if the dollar has resumed the general downtrend, then the two main factors holding back gold will disappear. Gold stocks are reacting according to the forecasts and systemic financial risks that we often discuss have not disappeared. We therefore believe that by mid-year gold can successfully reach the upper level of the pennant to confirm the bull market trend “, suggested the Portfolio Manager and Strategist. by VanEck.
As for mining companies, the drop in gold prices below $ 1,700 in March did not raise concerns for these companies which continued to exhibit solid cash flows. The senior / majors and mid-tier companies have all published both cost guidance and forecasts for 2021. Although most analysts believe that cost inflation will remain at low, single-digit levels this year. , long-term forecasts indicate that all-in sustainable costs (Aisc) will continue to hover around $ 1,000 an ounce.
“For the universe we analyze, we estimate an average Aisc of $ 1,047 an ounce for 2021, 4% higher than that of 2020. In 2021, the companies in our portfolio should have an average Aisc of $ 1,023”, he said. Foster pointed out, recalling that in its April report on the gold industry, Scotiabank estimates an Aisc up 2%, to $ 1,030, while the Bank of America special report on gold, published by Bloomberg, estimates a rise in costs by 5%, to $ 1,024.
Pay attention, however, to costs. In this cycle, companies are much more efficient at controlling costs than we have ever been before. Costs remained around $ 1,000 when the price of gold soared to over $ 2,000 in 2020. According to Scotia’s estimates, costs will decline slightly until 2023.
Costs remained low as companies are more focused on operational efficiency and less obsessed with growth. Construction of mines is a risky business; as a result, societies no longer attempt to build several at the same time. “In this cycle we see companies planning their development activities in order to grow at a manageable pace and avoid costly mistakes. In addition, more capital is used to finance projects related to existing, less risky, structures that usually generate returns. higher than the new mines “, Foster continued, explaining that the adoption of new technologies also contributes significantly to cost containment.
For example, on April 29, Newmont announced the start of production with a self-driving transport system at its open pit gold and copper mine in Boddington, Western Australia. Compared to traditional trucks, self-driving trucks have lower maintenance, fuel and labor costs. As the self-driving transportation system consolidates in Boddington, Newmont will seek to implement it in other mining sites, on a global scale.
Technology doesn’t just benefit seniors / majors. A junior, Osisko Development Corp., is testing a sorting plant for the Cariboo Gold project in British Columbia. The sorting of minerals can only be performed in deposits that have the right mineralogy. This system uses optical sensors or X-ray transmission technology to remove non-mineralized material from the belt that feeds the grinding plant. This increases the grade of ore and reduces the amount of material to be processed. The results were very encouraging. Osisko’s tests indicate that, compared to traditional processing, 50% less material passes through the plant, that processing and capital costs are reduced by 25-30%, that 50% less process water and 50% less energy is used for the concentrator and that a 50% lower storage capacity of the resulting materials is required. (All rights reserved)

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