LAWRIE WILLIAMS: Take out from Metals Focus’ Gold presentation

Tuesday saw the London launch of Metals Focus’ 100 page Gold Focus 2019 - the very comprehensive publication on global gold supply and demand - and a forecast on likely pricing this year.  The consultancy – one of the top-rated such for Precious Metals analysis - presented its finding and analyses to a lunchtime audience of financiers and analysts at Trinity House, near the Tower of London.  The principal speakers at the launch were Neil Meader, covering the general picture as Metals Focus sees it and Mark Fellows who went into more depth on the supply side of the gold sector, with the presentations illustrated by a number of informative charts.

We have already published, and commented on, some of the key mineside production data here on the Sharps Pixley website – see: World top 20 gold mining companies and mines 2018 – Metals Focus and World top 20 gold mining nations 2018 - Peak gold remains elusive. But to these we need to add some of the highlights from the presentations.

Neil Meader, Metals Focus’ Research and Consultancy Manager, was introduced by consultancy founder director Philip Newman.  Neil commented that last year was challenging for the gold price which saw a fairly rapid rise to around $1,360 before coming back to a low of close to $1,160, and then something of a recovery towards the year end.  The mid-year decline was largely due to a resurgence of dollar strength and a hawkish U.S. Fed which, at one stage was looking to three or four interest rate increases in the current year.

Equities also strengthened mid-year creating another headwind for gold as they provided, at face value, a better investment prospect.  On the futures markets a big short position in gold was built up, but this moved into a net long position by the year end coinciding with the pick-up in gold prices.  Equities also faltered towards the year end.

After this summary of what happened in the market, Neil passed the baton to Mark Fellows, Head of Mine Supply, who took us through Metals Focus’ new mined gold supply scenarios.  The consultancy came up with a 1.8% rise over its previous year figures, but some of this was due to a better understanding by the analysts of the size of the artisanal gold mining supply sector which accounts for around 15% of global new mined supply according to the consultancy’s analysis.  The better understanding of this significant sector was particularly relevant in countries like Sudan, Bolivia and Cote d’Ivoire.

Mark highlighted some of the significant changes in mine supply over the year – notably the decline in South African production through strikes and closures, countered by the big rise from Grasberg in Indonesia, although this will be a time-limited increase as the final high grade sections of the open pit are mined out. With around 90% of existing gold mines profitable on an All in Sustaining Costs (AISC) basis there is currently little pressure to close any significant operations due to unprofitability, particularly if the gold price shows the strength anticipated in the current year, so not too much in the way of a production downturn is likely, while projects in the existing pipeline and ramp-ups may well mean there is no overall gold production downturn in 2019.  He thus expects mine output to remain pretty flat in the current year.

Mark gave way to Neil Meader again who spent the second half of his presentation on total gold supply and demand.  Gold recycling has been flatlining as much of the available recyclable material had been freed up and moved into firmer hands when prices peaked around 5 or 6 years ago.  There was a small overall supply increase in 2018 – Metals Focus reckons around 2% - but demand increased too.  Notably the jewellery sector has been picking up as has central bank gold demand – the only real negative here been distress sales from Venezuela. 

As to the current year Meader expects demand to be strong, particularly in Q4, although the level of central bank purchases is seen as coming off after a very strong 2018.  There are headwinds in sight – particularly if the dollar remains strong, which seems likely despite the U.S. Fed intimating it will halt interest rate rises this year.  The U.S. economy may be facing difficulties, but the rest of the world perhaps even more so which could see something of a flight into the dollar, and a rising dollar tends to feed through to a weak gold price. 

The Metals Focus gold price forecast for the current year is flat to mildly positive.  Meader does see a possibility of the price touching $1,400 in the latter part of the year, but also reckons it could fall to around $1,250 in the interim.  Looking further ahead he sees the prospect of additional tailwinds supporting the price in 2020, thus suggesting a positive year overall for gold.  But much will depend on the state of the U.S. economy and equities markets and the performance of the dollar against competing currencies.

04 Apr 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com