Gold Digger: CHART – Frail Aussie dollar has local gold miners sitting pretty
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Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.
After nearly rising to a record high in early March, the US gold price has lost significant ground — down more than 10% or $200 from its peak.
“The sell-off accelerated in the last two weeks in the run-up to the Fed rate decision on 4th May and in its aftermath as gold’s traditional negative correlation with the US dollar re-emerged; bond yields, both nominal and real have also risen notably,” Metals Focus says.
Meanwhile, ASX-listed goldies are faring better than the average.
Why? If you’re an Australia-based producer you now have the added benefit of a super weak dollar, which is currently a lowly 68c versus the benchmark US dollar.
That means that while gold slipped in US dollar terms, it increased in real terms for local gold producers:
The strength in the US$ at 20-year highs is helping to distort the underlying health of commodity markets if you look only at US$ prices. Gold is a good example – the reference price is typically US$ – but in the context of the A$ gold price, it’s up over the past 2 months pic.twitter.com/skBTQnPPi6
— Gavin Wendt (@MineLifeReport) May 12, 2022
This silver lining hasn’t prevented the S&P/ASX All Ordinaries Gold index from plummeting to its lowest point since mid-February.
Despite the recent pull-back, gold prices seem to have found good support in the mid-US$1,800s, a level still comfortably higher than the beginning of the year.
“In essence, this reflects gold’s appeal as a hedge against inflation and geopolitical/economic uncertainties,” Metals Focus says.
“Sell-offs in the global stock and bond markets have also intensified in recent weeks, which have helped to limit the rotation out of gold among mainstream investors.
“As a reflection of this, flows into gold ETPs and physical investment (coins and bars), especially in western markets has been strong so far this year.
“Meanwhile, tactical shorts in the gold market have also remained subdued.”
But as official interest rates rise, Metals Focus forecasts the gold price to realise a weaker trend towards year-end.
That said, several factors justify holding gold for many mainstream investors.
“Among them is the growing risk that the slowdown in GDP growth may become more dramatic than expected, led by deepening supply-chain challenges, the Russia/Ukraine war and lockdowns in China,” it says.
“This may see current rate hike bets scaled back.
“Sentiment in stock and bond markets is also likely to remain fragile. Even following the recent sell-offs, equity valuations are still high by historical standards.
“All these factors should encourage institutional investors to retain their existing gold positions as a hedge against uncertainties. This in turn may prevent a heavy sell-off in the gold market.”
Here’s how ASX-listed gold & silver stocks are performing:
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Shallow augur drilling confirms gold across three broad areas at the ‘Yarbu’ project, next door to Ramelius Resources’ (ASX:RMS) ‘Marda’ gold mine in the WA goldfields.
“This allows our technical team to accurately review and confidently plan drilling programs with the aim of identifying further gold mineralisation at depth,” TSC chairman Rohan Dalziell says.
“Follow-up aircore [deeper] drilling will be undertaken across priority target areas in due course.”
The explorer says a new diamond drill hole has hit gold-hosting rock at ‘Mulgabbie North’, “further validating the potential of Mulgabbie to be a significant gold discovery”.
Late last month, OZM hit 1.31g/t over 56m — including 18m @ 2.07g/t — in drilling at the Mulgabbie North, next door to Northern Star’s (ASX:NST) tier 1 Carosue Dam operations in WA.
The results, which include significant hits from three holes spaced 100m apart, come from a recently launched 7,500m reverse circulation (RC) drilling campaign.
It’s early days, but this virgin discovery at the so-called ‘Demag Zone’ remains ‘open’ all over the joint, OZM says.
RC drilling of the Demag Zone will commence in three weeks’ time.