Monsters of Rock: Gold bears pick forecasts above US$2000 for the 'first time ever'

S&P Global Ratings lifts 2024 gold price forecast past US$2000/oz for first time after three revisions
Copper and met coal also expected to stay stronger for longer as supply shortages and production cost blowouts hit
Capstone Copper reports March results as ASX materials stocks end week on a medium-high note

S&P Global has picked up its gold price forecast and plopped it above US$2000/oz for the ‘first time’ in a sign even bears have been forced to respond to rising bullion demand.

Its medium term outlook has also been lifted for copper and met coal, in response to brighter conditions for commodities, coming off the back of a month marked by record gold prices and a lift for virtually every major metal.

READ: Up, Up, Down, Down: Everyone’s a winner in an astounding April for major metals

In its third revision in a year, S&P Global Ratings analysts have ratcheted up their 2024 gold price assumption from US$1900/oz to US$2100/oz, with 2025 forecasts up US$300 to US$2000/oz and 2026 US$100/oz higher to US$1700/oz.

Its 2026 met coal outlook has also been lifted from US$160/t to US$200/t after an explosion in production costs seen most notably in Queensland miners like BHP (ASX:BHP) and Coronado Global Resources (ASX:CRN).

Copper is up US$500 to US$9000/t for 2024 and US$9200/t in 2025, and US$300 to US$9200/t in 2026.

Aluminium, iron ore, zinc, nickel and thermal coal predictions have been left untouched.

Why gold?

Gold prices have been supercharged as Israel’s bombardment of Gaza in response to the October 7 Hamas attacks have set off safe haven buying.

But persistently strong central bank demand and hopes the US Fed will eventually cut interest rates this year have also placed a floor under prices even with other macro indicators like a strong US dollar pointing the other way.

“The long-standing inverse relationship between gold and the U.S. dollar has been disconnected for about two years because geopolitical risks supporting higher gold prices are overwhelming the currency considerations,” S&P’s Donald Marleau said.

“On the other hand, if that historical negative correlation resumes, we would expect either lower gold prices or a weaker U.S. dollar.”

Marleau thinks Israel-Palestine, Russia-Ukraine and concerns over China-US tensions around Taiwan will keep central bank buying high as Asian economies look to reduce their US dollar exposure.

S&P’s bearish longer term outlook on gold comes down to its view US treasury bond yields will remain above 3%, making them a more attractive conservative investment.

But higher production costs will also put a floor under gold prices.

“We assume prices will ultimately settle at about $1,700 per ounce in 2026, up modestly from our long-term assumption of $1,600 earlier this year. This stems from our view that higher costs will persist, particularly with respect to labor, and that a price below $1,600 would cause cash losses for some mines, considering that all-in production costs are trending more than 30% higher when compared to 2019,” Marleau said.

“While our higher gold price assumptions will strengthen credit measures more than we previously forecast for most gold producers we rate, we don’t anticipate imminent rating actions. Most of these issuers have benefited from several years of strong prices that increased cash flow sharply and improved their balance sheets, while they distribute excess cash to shareholders. In these cases, business risk or financial policy considerations constrain ratings upside more than gold prices.”

S&P’s enthusiasm for copper is far more apparent.

“Spot prices have moved up sharply since February 2024 due to a series of supply disruptions and good demand globally. The prospect of growing demand from renewable energy sources (infrastructure and the electric vehicle industry) supports our higher long-term price trajectory,” Marleau said.

“Our longer-term assumptions for copper contrast with other metals because of the modest upward slope from currently good price levels.

“Supply-demand is tight, with inventories at about eight weeks of supply for most of the last two years. The long-term demand outlook is robust, so prices never dropped as much as most metals in recent swings, and they rebounded from downturns faster than most.”

The sudden Cobre Panama mine closure last year and strikes at Codelco’s Radomiro Tomic mine, in response to a woman’s death in a mine truck fire, have also tightened the supply side of the market.

“Also, copper smelters in China have been under pressure due to high copper concentrate prices forcing a portion of less-efficient producers to idle capacity or to switch to scrap. Despite that, we expect global smelter production to outpace concentrate production through 2027, which might add to inventories modestly in the next year or two,” Marleau said.

Meanwhile iron ore and nickel forecasts remain unchanged despite strong recent price movements, with S&P skeptical new markets will pick up the slack when it comes to iron ore demand as China’s economy decarbonises and expecting nickel supply from Indonesia will improve as backlogged mining approvals are cleared.

Materials up to end the week

The big miners closed the week ahead, the materials sector tracking for a 0.3% gain at 2pm AEST on Friday.

Battery metals stocks were among the big winners, with the top lithium producers running higher.

C$7b capped dual-lister Capstone Copper (ASX:CSC) was up ~0.6% after reporting 42,121t of copper production at relatively high C1 cash costs of US$2.88/lb.

Its adjusted EBITDA lifted from US$66m to US$80.1m year on year with operating cash flow before working capital up from US$41.7m to US$62.1m YoY.

Its US$870m Mantoverde mine is expected to produce its first concentrate this quarter, with CSC maintaining guidance for 2024 of 190,000-220,000t at US$2.30-2.50/lb.