Monsters of Rock: Gold surges on safe haven demand, but experts say it's better to stay patient

Gold makes big move overnight as devil’s advocate of metals runs higher on safe haven demand as Israel-Hamas War kicks off
RBC analysts say macro factors will decide where gold actually ends up
Lithium miners take materials sector higher on Citi’s vote of confidence

Gold is renowned for its devil’s advocate nature, seeing massive gains as investors absorb bad news by sticking their life savings in the gleaming metal of largely symbolic utility.

Last night saw the latest major move as fighting between Israel and Hamas intensified in the wake of this weekend’s Hamas attack and outbreak of War over the Israel-Gaza border.

Bullion was up 0.7% to US$1863.36/oz, posting a second day of strong gains after months drifting from the position near record highs the yellow metal captured earlier this year.

It came as Chinese buyers also offered big premiums for bullion over spot levels amid concerns about a dithering Yuan.

“Gold prices inched higher as haven buying increased after the Hamas attack on Israel,” ANZ’s Catherine Birch said in a note.

“Investors shrugged off prospects of another rake hike by the Fed after solid Nonfarm Payroll numbers on Friday.

“The Chinese gold spot premium over the international benchmark price saw another spike of USD112/oz.

“This was despite Chinese authorities issuing a fresh round of import quotas to ease gold supply tightness in the local market. A weakening yuan and low consumer confidence supported demand for gold.”

Look for longer term support: RBC

Is it time to panic buy gold?

Not necessarily. RBC analysts led by Christopher Louney say there are specific triggers for “larger and more durable moves”.

Monday’s move in gold prices was around one standards deviation, by RBC’s reading not all that strong. There are priors for this kind of shift as well.

Last year’s safe haven charge in the aftermath of the Russian invasion of Ukraine was extremely short-lived, even as an end of year rally took gold to a nominal record average.

“While today’s move is around one standard deviation from the mean (using daily observations through 2008), thus implying it was not exceptionally strong of a move, more substantial and durable moves in gold could come from regional escalation, broader risk aversion, and economic implications,” Louney and friends said in a note to clients.

“Amidst oil’s price gains, we also highlight the potential implications that related price inflation and heightened uncertainty could have for the Fed and thus gold.

“While the flight to safety has led gold higher today, its longer-term path depends on key macro drivers. Given our current gold outlook and the move higher in risks, we may have seen a quarterly low already.”

WestpacIQ estimates gold prices will have averaged US$1948/oz by the end of 2023, comfortably eclipsing the record average of US$1809/oz set last year.

Gold stocks tiptoe up the stairs

The move in gold equities has been less pronounced, with the ASX All Ords gold sub-index just 0.39% higher today.

Among the handful of stronger performers was St Barbara (ASX:SBM), in recovery mode after the chastening end of its time in charge of the Gwalia gold mine.

It’s been left without any debt. That’s a good thing. Now the gold miner’s job is to make a business out of the assets the market previously didn’t love, the Atlantic Gold Operations in Nova Scotia and Simberi mine in PNG.

Over at Atlantic it has taken a first step to repositioning its operations with a PFS on its 15 Mile project, where it boasts a 618,000oz reserve.

SBM says the mine will average 55,000-60,000ozpa over an 11 year mine life at all in sustaining costs of US$992/oz ($1445/oz) and initial capital of C$182m ($207m).

“With this strong PFS result, St Barbara will now focus on preparation of an updated environmental and social impact assessment for this new standalone design of the 15 Mile Project,” SBM MD and CEO Andrew Strelein said.

“St Barbara is looking forward to working with Nova Scotia to create hundreds of well paid rural jobs and to remediating the historical tailings at the site.

“The Feasibility Study engineering is intended to be ramped up as we see progress towards Environmental Approval with commencement of development entirely achievable in mid calendar 2026.”

St Barbara (ASX:SBM) share price today

And on the markets

It was a lithium tipper’s delight as the one battery metal to rule them all (at least until this copper demand boom arrives … we’re waiting BHP) surged.

Behind it, it appears, was a Citi note from Kate McCutcheon, which ramped up Pilbara Minerals (ASX:PLS) and IGO (ASX:IGO) to buys.

Pilbara shares, under pressure for the past month as lithium prices have come off, ran more than 6% today, matched by a host of smaller players with Sayona (ASX:SYA) and Core Lithium (ASX:CXO) among the strongest trading producers.

The materials sector rose 0.65% despite indifference among the iron ore complex as prices in Singapore fell over 2% to a touch over US$110/t.

Iron ore spot prices were closer to US$117/t last week, with China’s steel industry churning out the product despite a weak property market and concerns about environmentally focused production cuts that could result in significant drops in crude output through the last quarter of the year.