According to experts, if next year the price drops as low as analysts expect it could, the situation would put the whole industry out of business. It is expected that it might drop as low as 1,500 USD per troy ounce by next year, if interest rates rise at the current rate, it could wreak havoc in this sector. However, a South African gold expert predicted that it will likely not go lower than 1,600 USD because of the support it receives from retail investors and emerging market central banks.
Recent gold market performance
Barrick’s all-in sustaining cost – one of the industry’s most crucial metrics – has risen 235 USD over the past year, to a whopping 1,269 USD per troy ounce. All the while net earnings in the 3rd quarter dropped by 30% to 241 million USD compared to the same period the year before. The average industry costs – including project capital expenditure, taxes, interests and loyalties – rose by 6% year on year to 1,693 USD per troy ounce. It is also widely thought that gold seems to project in the long term rather than the short term. As an example, gold prices reached an all-time high in 2020, at the peak of the coronavirus pandemic, but since then even though most of the market has been rising it kept falling and rising.
Expected price changes
Spot gold was trading around 1,760 USD throughout the first half of November 2022, a drop of about 15% compared to its record high in March and 8% higher than at its lowest in September.
This large-scale decline was caused by rising yields on government debts as central banks raised rates to tackle inflation. Macquarie commodity analysts predicted a low point of 1,500 USD by the second quarter of next year and will only turn around to start rising once the market is convinced by the US Federal Reserve’s stop on raising interest rates. Some others believe prices could drop as low as 1,300 USD – lowest forecast -, largely caused by investors withdrawing further from exchange-traded funds which track the gold price.
Some banks on the other hand have a view that prices will begin to rise. Their forecasts talk about a price increase to 1,795 USD by next year. At the same time, other executives and analysts claim that the prices have been more resilient than expected, considering how strongly the US Treasuries yields have risen. Many experts who believe that gold could fall to 1,500 USD believe that it will be due to the US Federal Reserve. While people never fail to highlight these factors of higher interest rates, they ignore some others. The Fed is analyzing inflation data where it is seen that higher inflation lowers interest rates, while also lowering the value of fiat money. This results in people trying to invest in more safe and secure ways, often gold. Meaning that higher inflation actually can be – and in many cases is – a catalyst for increasing gold prices. There are many other causes as well that are big reasons for the price increase such as the debasement of currencies and massive money printing by central banks which are big concerns and remain likely possibilities. However, this propels gold prices to greater heights.
Gold prices remain resilient versus US Treasuries l Bloomberg
What does it mean for the future of the industry?
Gold-backed ETFs have struggled for the past half year due to outflows, showing that investors are fleeing into higher-yielding assets. Throughout the third quarter, they took out an estimated 12 billion USD from these ETFs, the largest since 2013. The gold buying of central banks reached an all-time record of 400 tons in the third quarter. Analysts also believe that China – through their covert operations – and Russia have been the biggest central bank buyers – even though their purchases aren’t publicly reported -. As the US dollar is being weaponized in the sanctions against Russia, it is shaking the central banks’ faith in the dollar reserves. If prices continue to fall gold mining companies could spur more consolidation, such as the offer of 4.8 billion US dollars made by Pan American and Agnico Eagle to the Canadian Yamana Gold, surpassing an offer made by the South Africa Gold Fields. At the same time, the Canadian Triple Flag bought Maverix Metals for 606 million USD. This would further concentrate the markets in the hands of a few key players, possibly having a negative impact on the market as a whole.
Gold Price Forecasts 2022 to 2035 l World Bank
Historically gold recovered several years following the height of the crisis, and it is likely that the same trend will happen again. For example, following the 2007 financial crisis, gold reached its peak in 2011. If the same trend follows gold won’t reach its height likely until 2024 – 2025, however, the big question is how low will the gold plummet before it stabilizes, and how big of an impact will it have on the commodities market?
- FINANCIAL TIMES (2022): “Gold groups grapple with uncertain outlook for prices and costs” l https://www.ft.com/content/21d20c63-381c-4a97-8a4a-47bb5e75a9b3
- CHRISTENSEN N. (2022): “Geopolitical uncertainty dominates gold market as prices hold near $1,900” l https://www.kitco.com/news/2022-02-21/Geopolitical-uncertainty-dominates-gold-market-as-prices-hold-near-1-900.html
- WORLD GOLD COUNCIL (2022): “Gold remains resilient amid heightened global uncertainty” l https://www.gold.org/news-and-events/press-releases/gold-remains-resilient-amid-heightened-global-uncertainty
- FINANCIAL NEWS MEDIA (2022): “Is Recent Uncertainty in the Markets a Big Catalyst for Higher Gold Prices Going Forward” l https://www.prnewswire.com/news-releases/is-recent-uncertainty-in-the-markets-a-big-catalyst-for-higher-gold-prices-going-forward-301563673.html