Monsters of Rock: Fitch thinks gold's breakout could be coming in 2024

Fitch’s BMI says gold is likely to finish the year at around US$1950/oz
But a breakout could be coming in early 2024 if rate cuts and recessions emerge
Sayona nets proceeds of first lithium shipment from NAL

Gold is back above $3000/oz despite falling in the United States by some 0.6% to US$1926/oz as China’s weak services PMIs sent the Aussie dollar to its lowest level since late last year.

It’s a mixed outcome for Australian gold miners. The exchange rate is no doubt positive for exponents of Aussie bullion given they pay their labour costs in Australian coin.

And at current levels most are seeing all in sustaining costs margins in excess of $1000/oz, assuming they aren’t weighed down by the sort of hedges that have cut Regis Resources’ (ASX:RRL) earnings off at the legs in recent years.

But sentiment runs in US dollar terms and the response of the gold sector is mixed like a split mayonnaise today, down 0.68% on the gold sub-index.

Will this bearish mood last for long?

Analysts over at Fitch’s BMI (not to be confused with battery metals mob Benchmark Mineral Intelligence, who had some interesting nickel, cobalt and graphite updates out today) see the light at the end of the tunnel for gold in the first half of 2024.

Gold: Bullish to neutral … to bullish?

They have maintained their 2023 gold forecast of US$1950/oz today, in the hope prices lift despite sentiment turning from bullish to neutral in recent times.

“We maintain our 2023 gold price forecast at USD1,950/oz. Prices averaged USD1,934/oz in the year-to-date, coming in at USD1,898/oz on August 22 2023,” BMI said in a note.

“Having been neutral to bullish towards gold prices since Q422, we have now fully turned to just neutral for the months ahead.

“We believe gold is likely to see some weakness in the coming weeks over renewed US dollar strength, elevated bond yields, and expectations of further rate hikes by the US Fed on the back of a slight increase in US inflation.”

2024 will be a different story though if expected rate cuts in the United States eventuate heading into the election year.

“Looking ahead towards the end of the year and into 2024, investor flows into gold and thus prices will increase again as the US slips into a shallow recession in H124 and the US Fed ends its hiking cycle with possible interest rate cuts in 2024,” says Fitch’s BMI.

BMI says gold mine production will likely grow strongly this year as the world completes its rebound from Covid, and will rise thanks to high prices from 117.7Moz in 2023 to 135.1Moz by 2032, much stronger than the 0.8% growth seen as the world emerged from the 2013-2015 crash between 2016-2020.

Sayona waves off its first shipment, but the messages are mixed

Fresh off a massive sell-off on the news its managing director Brett Lynch would be on his way out, Sayona Mining (ASX:SYA) had some good news to cheer about today after seeing its maiden cash from the first shipment of spodumene concentrate from its North American Lithium operation in Quebec.

Owned 75-25 in a JV with Piedmont Lithium (ASX:PLL), the 20,500t shipment of 5.35% Li2O spod has banked the miner its first income, with 90% of the cargo paid for.

Another 10% will come after the vessel AAL Moon has arrived at port in late September.

NAL has 30,000wmt at port, enough to send Piedmont its first 15,000t cargo from the mine.

But no more cash receipts will be in tis quarter, meaning Sayona’s cash balance is likely to be lower than the $257m of cash and equivalents in the bank at August 31.

A rod mill failure also caused four days of lost production though the NAL plant is back online, with NAL to review its forecast production and sales “in light of the ramp-up performance as well as the impact of continuous improvement initiatives”.

“We are delighted to secure the cash proceeds from NAL’s first sales of spodumene concentrate, marking another major milestone for North America’s leading source of hard rock lithium production,” NAL interim CEO James Brown said.

“We are focused on continuing to safely ramp-up production at NAL and consistently delivering high quality spodumene concentrate to port ahead of multiple shipments planned for the remainder of the year, delivering increasing cash proceeds to NAL for the benefit of the joint venture.

“It is also pleasing to see our partner at NAL in readiness to take their first shipment under our offtake agreement.”

The ASX materials sector fell 0.45%, but energy stocks lifted 0.95% as oil hit a ten month high on Saudi supply cuts.