Recent Weakness In Bitcoin Has Helped Gold

CEO & Chief Investment Officer @ U.S. Global Investors
June 1, 2021

Strengths

  • The best performing precious metal for the week was palladium, up 1.45% on curtailed supply news. Gold continues to do well, as hedge funds raised their net long position to the highest level since January. ETFs have had inflows throughout May, following three months of sales. The recent weakness in Bitcoin is helping the price of gold, as well as a weak dollar. There is also belief that Russia will resume buying of gold for its central bank. The central banks in India and Thailand also have been buying gold recently. Gold stored at the Bank of England has been selling for premiums recently, implying that there is active central bank buying. The Bank of England stores and sells gold on behalf of other central banks.

  • Barrick Gold held an investor day discussing its Nevada Mines operation. There are 200 possible exploration targets that could bolster the production profile and extend production visibility to 15 years. Current guidance for the mine is a 200,000-ounce decline in 2022. The company also highlighted that it cut G&A by half after its deal with Newmont at the Nevada Mines operation.

  • Wesdome Gold will restart its gold mine at the Kiena siter in Val d'Or, Quebec. The mine is anticipated to have a seven-year life, producing an average of 84,000 ounces at US$380 per ounce cash costs.

Weaknesses

  • The worst performing precious metal for the week was platinum, but still had a positive gain of 1.04%. Gold miner Dacian Gold is seeking early support for an equity raising that could see it raise about $40 million. The news comes only days after Dacian Gold released drilling results at Mt. Marven, which is located at its 100 per cent owned Mt. Morgans Gold Operation in Western Australia. It also comes about 12 months after Dacian Gold last tapped shareholders for fresh funds. On that occasion, Dacian Gold raised $98 million in a placement and non-renounceable rights issue.

  • AngloGold has reported that following a ground incident last week at the Obuasi Mine in Ghana (where one miner remains missing) that it will need to undertake an in-depth assessment of mine design, mine schedule, and ground management plans before progressively restarting the mining operations. The early indications are that this was caused by the failure of a horizontal or sill pillar, in one of the smaller mining stopes. This will see AngloGold suspend its 2021 production guidance of 300,000-350,000 ounces at a total cash cost of $660-$710 per ounce.

  • Bloomberg wrote a report indicating that Barrick Gold's earnings lack strong momentum in 2021. Output will fall this year 3% as non-core assets are disposed of. Gold production expansion may be difficult until 2030. 

Opportunities

  • Montage Gold reported good results at its Kone silver mine. Consensus was for a 200,000-ounce operation with a mine life of 10+ years. A recent preliminary economic assessment guides to 249,000 ounces per year of silver with a mine life of 15 years. The payback period on exploration is 2.8 years.

  • MMC Norilsk Nickel PJSC, the world's largest producer of palladium, expects a significant shortfall of the metal this year after flooding at its Arctic mines upended its December projection for an almost balanced market. Increased demand combined with flooding at Nornickel's Oktyabrsky and Taimyrsky mines, along with incidents at the company's concentrator, will produce a palladium deficit of 900,000 ounces.

  • Gold and precious metals along with and many mined commodities have hit record prices this year as the global economy bounces back from Covid-19 but business are finding materials and general supplies limited. For instance, the price of copper—used in construction and to conduct electricity—has nearly doubled over the past 12 months to a record of $10,762 a metric ton earlier in the month. Miners, however, have been cautious towards deploying new capital. Executives seem to be more focused on delivering financial performance, that discipline is now raising the specter of supply restraint which should keep prices firm.

Threats

  • An attempted coup in Mali, Africa's third-largest gold producer, threatens to derail presidential elections planned for February that are meant to return the nation to civilian rule. The move comes after an Aug. 18 coup saw the ouster of former President Ibrahim Boubacar Keita and adds to the chaos in the West African country. Mali produced 66.5 tons of gold in 2020, making it the third-largest producer of the metal in Africa, according to the Mali Mining and Petroleum Conference and Exhibition. Companies including B2Gold, Barrick Gold and AngloGold Ashanti operate in the West African nation.

  • B2Gold provided an update confirming that the evolving political situation in Mali has not impacted operations at the Fekola Mine. This comes after Mali's interim President Bha Ndaw and Prime Minister Moctar Ouane were arrested by the military on May 24th. 

  • Gold has done well over the past two months, but with several FOMC meetings between now and year-end, the risk of "taper talk" may be a headwind to the price of gold because yields may increase. 

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: editor@usfunds.com.

A sheet of gold can be made thin enough to be transparent

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