A climbing gold price has been great for goldminers and investors, but recent pullbacks in both point to a clouded future.
As global economic uncertainty rises, investors are increasingly turning to gold as a safe haven, driving its value close to record highs. “Gold has always been a safe haven … investors are clearly a bit worried about the economic situation around the world, and they’re flocking to gold again,” Business Reporter Ed Boyd said.
Economists and analysts say the immediate future of the precious metal, which has climbed 50 per cent in five years, remains clouded by interest rate moves, war and fears of politicians pushing the US into a debt default, but gold’s outlook as a safe haven remains solid.
On Friday spot gold was trading near $US1959 per ounce, down from the $US2063 it struck earlier this month and still not far from its record high of $US2075 reached in 2020.
Australian gold stocks listed on the All Ordinaries index surged 37 per cent between February and
April, but have since fallen almost 10 per cent – despite takeover appeal as the nation’s biggest goldminer, Newcrest, was swallowed by the world’s biggest goldminer, US-based Newmont, this week.
Some investors prefer buying pure gold rather than goldminers. Picture: Richard Dobson
Investors wanting exposure to gold face of choice of buying bullion directly, buying into exchange traded funds (ETFs) that track the gold price, or buying individual mining stocks.
IG market analyst Tony Sycamore said while there was a strong relationship between the gold price and goldminers who were “pulling the raw product out of the ground” he preferred seeking gold exposure through ETFs.
“When you look at goldminers some have credit risk, risk of strikes or nationalisation – there are different aspects that you open yourself up to,” he said.
However, some gold companies could reward investors by paying dividends, which physical gold could not do, Mr Sycamore said.
“I prefer to get exposure to the spot price, unless I can find a stock trading at a fairly significant discount to its fair value,” he said.
“The merger this week reduces your options somewhat.”
Gold has fought off cryptocurrency’s challenge as a global safe haven, and bitcoin enthusiasts are no longer calling crypto “digital gold”. While bitcoin’s price has more than halved since late 2021, spot gold should surge dramatically if US politicians cannot agree to raise their debt ceiling soon.
“Commonsense says the US debt issue will be solved at some point and that will be a negative for gold,” Mr Sycamore said.
History showed US politicians traditionally left these debt default decisions to the 11th hour and “they can fix it with the stroke of a pen”, he said.
“At the moment trading in gold is little like flipping a coin.”
Macquarie research released this month said most Australian gold stocks were trading below its price targets for them, and its top stock picks in the sector included Northern Star Resources and Regis Resources.
“We expect gold to keep pushing higher,” Macquarie noted.
Newmont has existing mining operations in Western Australia and the Northern Territory.
“The current backdrop remains near enough perfect for gold, with the Fed having likely delivered their final hike for this cycle,” it said.
ACY Securities chief economist Clifford Bennett said gold was under pressure from shifting sentiment, but remained the “go to safe place” to run to in the next crisis, which could be just around the corner.
Mr Bennett said the US should resolve its debt crisis.
“This will momentarily see some selling of Gold, but only as a kneejerk response … Should a default occur, there is no telling how high Gold will scream,” he said.
Mr Bennett said he expected the gold price to rally another 20 per cent this year, towards $US2500 an ounce.
“Several nations have been focused on re-establishing their own independent level of gold reserves for the long term,” he said.
“This is gold being taken out of the market which will not return any time soon.”