How high can gold go, explorers ask as bullion bounces past magic US$2000 mark

Gold broke through the psychological US$2000/oz barrier for the first time since March 2022
Argonaut’s George Ross says bullion is back at super high levels, with investors excited to see just how high prices can go as safe haven demand rages
Explorers are hopeful it will bring investment back to unloved junior gold stocks

Gold has finally done it, breaking the back of its US$2000/oz resistance to hurdle the magical milestone for the first time since March 2022.

While last year’s short-lived rally was powered by irrational buying in the wake of Russia’s invasion of Ukraine, this year the fundamentals are lining up far more favourably.

Investors can see the oasis (or mirage) of an end to rate hikes from the US Fed with a fall in US job openings on Tuesday providing the fuel for a 2.1% run to US$2020/oz.

Paired with safe haven buying on a weakening global economic picture, and gold is stealing back some of the thunder it lost to battery metals, cannabis and crypto in recent years.

“I think it’s massive. For those holding gold, we’re back up at super high levels that you start to wonder how high it’s going to go,” Argonaut mining analyst George Ross told Stockhead on the sidelines of the Resource Connect Asia Future Commodities Forum.

“I think everyone’s feeling a little bit skittish in the market in general and gold’s always seen as a safe haven.

“So I think pitching over US$2000/oz, even though we’re in an environment of high operating costs, it certainly makes things look rosier on a potential margin side.

“And I think particularly in the developer and explorer space, perhaps that value isn’t being fully recognised in the market yet. So hopefully, we’ll start to see the smaller companies start to capture some of that value.”

Value coming back to gold stocks

That spectre of high operating costs — supply chains, labour shortages, Covid and operational issues across Australian gold mines all to blame — continues to hang over many gold producers.

But the run up in prices will no doubt ease some of those margin pressures, and deliver a more bullish outlook for advanced developers and explorers.

“I really think there’ll be a bit more value realisation in those,” Ross said.

“A lot of them have been sold off pretty heavily, things like Medallion (ASX:MM8), Predictive Discovery (ASX:PDI) or AuTeco (ASX:AUT).

“They’re all potentially very serious operations, but they need to capture the support of the market to be developed.”

After a 3.82% rise yesterday the All Ords gold sub-index is now up more than 22% this year to date and is in positive territory on a 12-month basis.

In an interesting sub-plot Newcrest Mining (ASX:NCM) is now above $28, more than the value of a rejected $24.5m takeover offer from US giant Newmont.

Gold Road Resources (ASX:GOR) rose 4% after announcing the millionth ounce of production from its Gruyere JV in WA with Gold Fields along with a three-year outlook of 335,000-375,000oz and life of mine plan delivering 350,000ozpa until 2032.

West African (ASX:WAF) also rose after announcing it had increased its unhedged reserves in Burkina Faso to 6.4Moz, with planned average production of 208,000oz in 2023 and 2024 and 400,000ozpa from 2025 to 2032.

This year it will produce 210,000-230,000oz unhedged at costs of US$1175/oz or below.

While lithium and other battery metals were the order of the day as industry figures including Federal Resources Minister Madeleine King converged on Singapore for the first day of the Future Commodities Forum, we hit up gold explorers to get a sense of how they’re feeling.

(Spoiler alert: Pretty darn chipper.)

Black Cat Syndicate (ASX:BC8) managing director Gareth Solly

Black Cat Syndicate owns two of Australia’s highest grade gold resources at the Paulsens and Coyote mines in WA. The former, where BC8 recently announced a new underground resource of 258,000oz at 10.8g/t, is the subject of a potential decision to mine later this year.

“In Aussie gold that’s close to $3000. Those are fantastic levels for us,” Solly said.

“Everyone’s producing their studies at $2500/oz these days, $3000 is a lot more revenue coming in.

“Obviously, costs have been creeping up over the last year or so but at these gold prices it should be profits for most gold companies.

“It gives you a lot of confidence that there’s going to be good cash flows coming in those early days once we do get into production. We might be there early next year.

“In this sort of inflationary environment and with interest rates where they are, I think gold’s just as critical to a portfolio as these other (battery) metals.”

Black Cat Syndicate (ASX:BC8) share price today:

Magmatic Resources (ASX:MAG) managing director Adam McKinnon

Magmatic Resources is exploring for major copper and gold porphyries near the Cadia, Northparkes and Boda deposits in NSW’s Lachlan Fold Belt.

“It’s really important to see. Gold stocks have been quite depressed over a little while.

“We hope it will reinvigorate the interest especially in greenfields exploration for gold and especially in our part of the world, western New South Wales.

“We’re lucky in our part of the world, we’ve just got a bit of a roll on with a number of approvals happening — four approvals from the New South Wales government around the gold space in the last three months.

“Obviously, when the gold price goes up we do see interest flow back in into our part of the sector, which is really good.

“Obviously, there’s been a lot of interest in lithium and rare earths and capital has been flowing that way as well.

“It would be nice to see some interest come back into both gold and into the base metals. They’re just as important if not more important to our industry in Australia in terms of share of market.

“We’ve seen a lot of interest in gold, but also in things like copper as well, everyone’s expecting there to be a little bit of a shortfall in that sense.

“Gold is clearly a safe haven when the markets and banks are doing what they’re doing at the moment and we would expect that gold will continue to perform strongly because of those external factors as well.”

Magmatic Resources (ASX:MAG) share price today:

Nexus Minerals (ASX:NXM) managing director Andy Tudor

Nexus owns the Wallbrook project in WA where it is exploring for gold in the vicinity of Northern Star Resources’ (ASX:NST) Carosue Dam gold mine and has a host of critical minerals projects on the east coast, recently becoming NSW’s largest tenement holder with a 15,000sqkm pegging expedition over LCT and tin prospects in the Lachlan Orogen’s Wagga-Omeo Zone.

“The confidence has left the market a little bit only because critical minerals which we’re all wanting to be a part of is going to share the limelight going forward,” Tudor said.

“We’ve had this over the years, gold stays the solid marker of the industry and then there are forays into other parts of the market and minerals that are flavour of the month almost.

“But I think critical minerals have been assisting getting investment back into the minerals space, at least getting it away from medical marijuana and other spaces that don’t benefit the mining industry at all was a huge plus.

“Now our investors here and shareholders, I think they’re all getting very excited about it. This ceiling that gold’s been held under has been under so much pressure to break and move forward and they’re all looking at a US$3000/oz gold price and focusing on (what happens) once it goes.

“The world is only getting to be a worse place and not a better place, and that way the gold price should stay strong as it’s traditionally been strong.

“I think it’s been problematic since the GFC even, a lot of the graphs which have made sense don’t make sense anymore and I think that’s why it’s been a bit of a struggle for gold to break through US$2000/oz, everyone’s been a bit scared almost about where it could go.

“I think it’s fantastic for gold, fantastic for investors and Nexus is an advanced gold explorer so we’re certainly happy about it.”

Nexus Minerals (ASX:NXM) share price today:

Alto Metals (ASX:AME) managing director Matthew Bowles

Alto Metals has a dominant landholding in the Sandstone gold district where on Monday it released a new shallow resource of 17.6Mt at 1.5g/t gold for 832,000oz in a $2500/oz (Aussie) pit shell. Unconstrained resources are in excess of 1Moz.

“The gold prices has been playing around at that just sub-US$2000/oz level for a while and breaking through there is great for gold,” Bowles said.

“We’ve seen the gold price moving up quite aggressively and we haven’t seen that flow through to the equities yet.

“I think that will start to flow down. Typically it hits the producers first, then the developers, and I think you have the emerging developers and advanced explorers near the end.

“You’ve got gold mines operating, they’ve got hungry mills and if they haven’t been investing in exploration there’s a lot of M & A that’s going to happen and that’s something we’re starting to see already.

“We based our optimisations on $2500/oz and that’s because we based our previous resource on a $2500 gold price. That was just to show investors the real resource growth we had, but now that the gold price is at $3000 you’d expect if you reoptimise that using a higher gold price and with more drilling you’re going to have more ounces falling into that optimised pit shell.

“Which is why we showed the overall 1Moz we have. We’re just going to keep adding ounces and growing the project.”