Gold SWOT: Gold Held Around the Highest in Three Weeks to Kick Off September

Strengths

• The best performing precious metal for the week was platinum, up 2.09% as hedge fund managers flipped their view that it was more attractive to be long futures now. According to BMO, Petra Diamonds reported the results of Tender 1 (F2024) with a marked improvement in diamond sales and revenue over Tender 5, which was expected given the deferral of Tender 6 (F2023). However, like-for-like rough diamond prices declined 4.3% from Tender 5.
• Dundee Precious Metals said that a court in Ecuador has reaffirmed its project concessions in the country and clarified expectations of the company toward certain local indigenous groups. Based on the Canadian gold miner's preliminary analysis of the appeal of the Constitutional Protective Action filed against Ecuador's Ministry of Environment, Water and Ecological Transition, the decision reaffirmed the company's mining concessions for the Loma Larga project.
• Gold held around the highest in three weeks as U.S. inflation data printed in line with forecasts. The metal edged higher Thursday for a fourth session, after drawing support from weaker than expected U.S. economic data that diminished expectations of another rate hike by the Federal Reserve. Swaps contracts are now pricing in less than a 50% chance of another quarter-point increase this year. That has helped gold recover from a slide below $1,900 earlier in August, though it is still on track for a monthly loss of about 1%.

Weaknesses

• The worst performing precious metal for the week was palladium, down 0.59% as hedge funds pushed their net short position to a three-month high. Zijin Mining reported first-half recurring profit of Rmb10.418bn, 8% below consensus, due to lower-than-expected gold and zinc profit. The company declared an interim dividend of Rmb0.05/share, implying 13% payout ratio, versus nil in the first half of last year.
• Europe’s top copper producer Aurubis AG warned it may face losses in the hundreds of millions of euros after being hit by a massive scam involving shipments of scrap metal that it uses in its recycling business. Aurubis believes some of its suppliers have manipulated details about the scrap metal they provided and had been working with employees in the company’s sampling department to cover it up.
• Anglo American’s De Beers sold a provisional $370 million of rough stones in the seventh sale of 2023, compared with $411 million at the prior sale and $638 million a year earlier. “With the prevailing economic environment leading to softer end client demand for diamond jewelry in key consumer markets, and the traditionally lower levels of midstream trading during the summer period, sight holders continued to take a prudent approach to their purchasing during the seventh sales cycle of the year,” De Beers CEO Al Cook said.

Opportunities

• According to JP Morgan, gold’s negative beta to real yields has historically been weaker over Federal Reserve hiking cycles while also displaying an overall more erratic relationship. Nonetheless, as the Fed pauses, cuts and then holds rates at a low level, the relationship and negative beta both steadily strengthen. This, in part, could also explain some of gold’s resilience in the face of the Fed’s most aggressive rate hiking campaign in 30 years. In their view, it also supports their thesis that an eventual push lower in real yields as the Fed moves towards cuts will catalyze further upside for gold prices in the coming year.
• According to Bank of America, for Hochschild Mining's Volcan gold project in Chile's Atacama region, recent studies based on heap leach processing and upfront capex of $900 million suggest Volcan would produce around 3.8 million ounces (Moz) of gold over 14 years with a net present value (NPV) of $826 million and an internal rate of return (IRR) of 21% at $1,800 per ounce of gold.
• Investor sentiment supporting gold’s prospects aligns with the outlook that real yields will either decrease or remain stable. Money managers are positive about the gold price in 2024, according to a recent survey, even though there are tough
  challenges like a stronger dollar and the chance of even higher U.S. interest rates. Significantly, none of the respondents to the survey said they would cut their exposure to gold next year; some are even thinking about investing more.

Threats

• According to Bank of America, Fed Chair Jerome Powell delivered a moderately bearish message for gold at Jackson Hole: still-too-high inflation could merit further rate hikes (and rates are negatively correlated with the gold price).
• UBS expects some ongoing execution risk at Newmont to persist through the end of the year. In particular, the Penasquito mine in Mexico remains shut down since June 6, and timing of a restart is uncertain. Furthermore, they expect few upside catalysts before the Newcrest acquisition is closed later this year and Newmont has a chance to issue combined guidance.
• Junta leader Assimi Goita signed into law mining code that gives the state and domestic investors the right to take a stake of up to 35% in mining projects, compared with 20% previously. “The new mining law’s promulgation is part of the preservation of the interests of the Malian people,” Goita says in statement posted on X, formerly known as Twitter.