• Gold prices surges, then falls on confusing FOMC messaging
  • CBA sees gold futures trading in the $US1600‑1700/oz range over the next year
  • Materials the worst sector performer today, down 3%

Ground Breakers: Your large and mid cap mining news for Thursday, November 3.

 

It was a volatile day for the gold price yesterday, largely thanks to Federal Reserve chair and tight monetary unit Jerome Powell.

Gold prices initially jumped by $US20/oz, triggered by the Federal Open Market Committee (FOMC) statement accompanying the US 0.75% rate increase overnight.

The FOMC said that “in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation.”

Which sounds like the FOMC is considering slowing down those rate increases. Not so, said Powell at the ensuing press conference.

“Fed Chair Powell highlighted that the FOMC still has ‘some ways to go’ on lifting rates and that the ‘ultimate level of interest rates will be higher than previously expected’,” said CBA mining and commodities researcher Vivek Dhar.

It was the unintentional (we hope) equivalent of ‘selling candy’, a footy term in which a player fools an opposition defender to go one way, while they go the other. Like this:

via GIPHY
 

Gold, and everything else, immediately gave back early gains.

 

Where does gold go now?

Gold has had a rough year, which has seen it drop ~8.4% year-to-date and 19.6% from its March peak.

CBA’s Dhar says the historically strong inverse relationship between gold prices and US 10-year real yields will keep prices supressed over the next year.

“The intuitive logic is that higher long term US real yields increase the appeal of US interest bearing assets relative to gold,” he says.

“US 10-year real yields have increased substantially over the last two months, but have been volatile over the last few weeks. We think that will fundamentally support lower gold prices.”

A higher US dollar though will continue to weigh on gold futures too, Dhar says.

“Our International Economics team now sees the US dollar peaking in Q1 2023,” he says.

“It’s worth noting that this environment where rising inflation, particularly in the US, is driving global growth concerns is going to bias safe haven demand towards the US dollar over gold. That’s because the US dollar benefits from a higher Fed Funds rate, while gold does not.”

CBA sees gold futures trading in the $US1600‑1700/oz range over the next year, Dhar says.

“More specifically, we see gold futures averaging $US1650/oz in Q4 2022, before dipping to $US1625/oz in H1 2023, before rising back up to $US1650/oz in Q3 2023,” he says.

“The risk that prices fall below this range will likely depend on US inflation outcomes tracking above expectations in coming months. The risk that gold prices rise above this range will likely depend on US inflation falling faster than expected.”

 

Low prices ravaging high-cost gold operations

High gold prices in 2020 saved many struggling gold operations, but no more.

High profile investor Eric Sprott says he may lose +$US100m on insolvent Canadian gold miner Pure Gold and its troubled Red Lake operation.

Court documents indicate Pure Gold owes Sprott about $US123m as of June 30, plus $US33m through a gold streaming deal.

Pure Gold is now looking for a buyer. Could it be neighbouring mid-cap producer Evolution Mining (ASX:EVL)?

Materials down as ASX plummets

The ASX was down 2.10% by 12pm eastern time, with Materials the worst sector performer at -3%.

It is a sea of red for the mining mid and large caps; no one has escaped the carnage.

ASX large and mid cap Materials stocks in morning trade Thursday. Pic: CommSec.

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