Gold Digger: Gold could go parabolic if the US dollar is toppled as world’s reserve currency

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• The USD’s status as the world’s reserve currency is under attack: Goehring & Rozencwajg
• This could be a rocket under the price of gold, most trusted store of value across the globe for over 3,000 years
• Weekly Small Cap Standouts: Iceni, Musgrave

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

After flirting with record highs, gold fell a marginal 0.9% in May to US$1,964, leaving the y-t-d return at 8.3%.

But the fall was marginal and in part attributable to strength in North American currencies (USD, CAD), according to the World Gold Council (WGC).

In other currencies gold made gains. In AUD terms that was +0.8%, for a healthy +13.5% YTD.

While the FOMC meeting scheduled for June is expected to be the first ‘hold’ since February 2022, a slew of ‘hot’ data has raised the probability of a further hike.

“Gold is getting crushed as the bond market signals rate-hiking cycles are not ready to end,” OANDA analyst ed Moya says.

“The Bank of Canada rate decision sent a shiver down the spine of most gold bulls as they are the leading central bank when it comes to action since COVID-19.

“The BOC was the first major bank to hike and hold, which means today’s message that more hikes are coming is resetting many peak terminal rate bets.

“Gold is facing critical support at the $1,950 level and if that breaks, bearish momentum could eye the $1,935 region.”

Things are looking good in late trade Friday. Gold is currently paying $US1980/oz, or $2951/oz Aussie.

Gold could go parabolic if the US dollar is toppled as world’s reserve currency

As a result of interest rates rising throughout 2022-2023, the value of the USD also increased compared with other currencies, making it more attractive to investors.

Historically, gold prices tend to decrease when the value of the USD goes up, but it appears that over the past year, gold has been more influenced by the USD than on average.

This could be about to change, big time.

The USD’s status as the world’s reserve currency is under attack, say commodity experts Goehring & Rozencwajg.

“Luke Gorman … has written about the end of the US dollar reserve status for nearly a decade,” they say.

“We were never convinced a change was imminent, given we saw no actual evidence countries were moving away from the dollar.

“While the arguments made sense, China continued buying Australian coal in dollars, and foreign Central Bank Treasury holdings remained elevated. The US reserve currency status may have been unsustainable, but at the time, it appeared intact.”

This is starting to change, they say. The past 12 months have seen a spate of announcements of countries looking to settle trade in currencies other than the USD.

“Although details remain scarce, Saudi Arabia has discussed settling its oil sales in [China’s currency] renminbi,” they say.

“All sanctioned Russian oil sales have been paid for in renminbi to avoid the SWIFT banking system necessary for US dollar settlement.

“In April 2023, the Brazilian government announced intentions to set up the infrastructure to settle trade in renminbi.”

The list goes on. If this trend continues, it could represent the end of the USD as the global reserve currency, with much talk on the renminbi, as a replacement.

This will be a rocket under the price of gold, the most trusted store of value across the globe for more than 3,000 years.

“Any move by China to displace the US dollar as a reserve currency must include some degree of gold convertibility,” Goehring & Rozencwajg say.

“Foreign holders could then convert some portion of their trade surplus from renminbi into gold via the Shanghai gold exchange.

“China has accumulated vast amounts of gold in recent quarters, making such an outcome more plausible.

“If this were to happen in earnest, commodities would go from radically undervalued to radically overvalued – likely led by gold.”

Winners & Losers

Here’s how the ASX-listed precious metals stocks are performing this week:

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

Stocks missing from this list? Email [email protected]

ASX Small Cap Standouts

ICENI GOLD (ASX:ICL)

(Up on no news)

On Friday, the buying continued for a second straight day after the explorer reported “spectacular” high-grade gold in rock samples Thursday at the Everleigh Well target, part of the 14 Mile Well project in WA.

Peak assays from the outcropping vein were between 14,700g/t and 18,207g/t, it says.

Prospecting activity has also recovered gold nuggets across the Everleigh Well tenure.

The nuggets found near the vein are angular and show little or no signs of transport, ICL says, which means the primary source may be close by.

“Assay results from the discovery of the second outcropping quartz vein with visible gold in the Everleigh target area are exciting, as they back up the initial field observations that reported visible gold in outcrop,” ICL technical director David Nixon says.

“The high-grade rock chip results from the vein are supported by the underlying UFF+ soil anomaly, prospectivity indicators (including gold nuggets, workings, and anomalous geochemical assays) and the multiple coincident targets generated by existing exploration work.

“The Everleigh Well target area continues to deliver in-situ gold-bearing rock chips and significant numbers of various sized gold nuggets, where a number of key targets will be prepared for future exploration drilling.”

It’s not the first time ICL has picked up a bagful of nuggety gold.

MUSGRAVE MINERALS (ASX:MGV)

Westgold Resources (ASX:WGX) has lobbed an all scrip off-market bid for MGV, which holds a near million ounce resource base in WA’s Mid-West, surrounded by major gold miners in the historic Cue gold field.

Its big prize is the Break of Day discovery, which measures 327,000oz at an extraordinary grade of 10.4g/t, more than four times the average grade at its Cue project.

While MGV has a PFS of its own on a standalone operation producing 337,000oz over five years at capex of $121m and a lowest quartile AISC of $1315/oz, Break of Day’s grade makes it a primo target for companies with existing mills in the area.

Westgold is an obvious one, controlling the bulk of the milling capacity in the region.

It has also been advantaged by the growing arbitrage between producer and explorer stock prices.

While MGV shares have risen slightly in 2023 until this week, Westgold’s are up over 70%.

The stalling and in many cases falling values of micro caps this year (Hedley Widdup’s analysis here) has made juniors with assets of value ripe for the picking.

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