Gold Digger: Geopolitical tantrums help, but they aren’t the main reason gold prices will recover later this year

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The gold price traditionally thrives on geopolitical drama.

Heightened tensions in eastern Ukraine, the recent incident at an Iranian nuclear site, and news of an unofficial US delegation visiting Taiwan are recent reminders that 2021 will be yet another year when geopolitical risks abound.

These potential flareups – in a world still knocked about by COVID-19 – could benefit the gold price, and by extension, gold stocks.

However, history shows us that the positive impact is short-lived, Metals Focus says.

>>> scroll down for the performance of ASX-listed gold & silver stocks over the past week >>>

“We think it unlikely that such events will have a lasting effect on gold and other precious metals prices,” it says.

“This assessment is based on how gold has often reacted to crises over the past 30-40 years.

“In most cases … gold did achieve some healthy upside, in some cases quite dramatically.

“However, this often proved to be a knee-jerk reaction, with prices quite often returning to pre-crisis levels in a relatively short period of time.”

An outlier was the Soviet Union’s invasion of Afghanistan in December 1979, Metals Focus says.

“Although the price had been rising for some time before the invasion (as the second oil crisis unfolded), this saw gold more than double in a matter of days to a then all-time high of around $850/oz,” it says.

“Gold then remained strong for an extended period, but this owed more to the oil crisis and its impact on the global economy, including the US dollar, which at that time had weakened to multi-year lows.”

The emphasis — and  ‘Rambo fighting Russians in Afghanistan’ gif — are ours.

It indicates that the macro backdrop is more important to the gold price than Rambo’s geopolitical posturing.

The backdrop is positive in 2021, Metals Focus says.

“Monetary and fiscal policies, including the persistence of ultra-low interest rates and negative real yields, and concerns about future inflation will continue to make the case for strong gold investment for the foreseeable future,” it says.

“Partly related to this, we are sceptical that the recent strength in the US dollar will continue as we progress through this year.

“We believe all this will eventually help gold to recover, with the price expected to strengthen later this year and into 2022.”

Winners and Losers

Here’s how ASX-listed gold and silver stocks are performing:

Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop

Small Cap Standouts

NEW AGE EXPLORATION (ASX:NAE) +31%

The explorer has kicked off an early stage, pre-drilling survey in the Central Pilbara gold district in WA.

This tenure is next door to Novo’s (TSE:NVO) Egina gold project and less than 50km from De Grey’s (ASX:DEG) colossal Hemi discovery.

Most of the ground is under cover and has received little attention from historical gold prospectors, NAE exec director Joshua Wellisch says.

“We are excited to see the results in the coming weeks in the lead up to our maiden drill program to the North,” he says.

ORMINEX (ASX:ONX) +24%

In December, this former struggler sold 50% of its undeveloped 248,000oz Penny’s Find gold mine for $1.5m to Horizon Minerals (ASX:HRZ), which will shell out another $1m to fund early development.

The JV has now reported multiple significant drilling intercepts testing for the edges of this gold system, including 5m @ 5.27g/t gold from 180.3m and 3.7m @ 7.46g/t gold from 215.3m.

“The first round of high-grade drilling results demonstrating multiple areas of significant width are a testament to the calibre of the Penny’s Find gold deposit and we very much look forward to receiving results for the remaining 8 holes of this program, expected in the current June quarter,” Orminex director Dean Hely says.

RESOLUTE MINING (ASX:RSG) +12%

Another goldie which has struggled over the past year.

The share price of gold miner Resolute was spanked last month when Ghana decided to cancel its mining licence at the undeveloped Bibiani gold mine.

This happened just as Resolute was in the process of selling it to Chinese company Chifeng for ~$US105m.

That mining licence has now been restored “to maintain investor confidence globally and in particular maintain Ghana’s reputation as the preferred destination for mining investment in Africa”, the company says.

The share price is still down 46% over the past year, making Resolute the third worst performer in that period.

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