We recently published a Gold Industry Report about the positive future outlook for gold. The current interest rate cycle, inflation situation, market volatility and geopolitical chaos are set to reaffirm gold’s status as a safe haven.

To help investors gain insight into these matters, the report features the opinions of three fund managers, a gold miner and a research company. 

This included Terra Capital Portfolio Manager Matthew Langsford, Lowell Resources Funds Management CIO John Forwood, Triple Eight Capital Co-founder and Portfolio Manager Roscoe Widdup, Pilar Gold Inc Founder and CEO Jeremy Gray and Banyantree Investment Group Director and Investment Manager Zach Riaz.

Delving into the important factors that drive the gold price, and how the market has been reacting, some interesting statistics were discovered.

“The World Gold Council estimates gold buying by central banks at 400t in the September 2022 quarter; the highest in over 20 years. Central bank buying in the first three quarters of 2022 is estimated to be higher than any full year total since 1967” Matthew Langsford says in the report.

Uncovering valuable insights into treasury yield changes and their effects on gold, Mr Langsford continues: “Gold’s two sworn enemies are the US dollar and real yields on US treasuries. Entering 2022, the real yield on a 10 year US treasury was negative 1%. Fast forward to today (11/11/22), the real yield on that same US treasury is positive 1.4%. The commentators are calling that shift the fastest on record.”

He shares that because gold doesn’t have a yield, a change in real yields (the opportunity cost) is a serious factor. Real yields falling is a great tailwind for gold, but real yields rising to that degree is an enormous headwind.  

John Forwood comments on the rising costs in gold mining that are clearly apparent given the recent GDX figures, after they reported a 19.7% year-on-year rise in the AISC of their top 25 gold producers, averaging US$1,281/oz for Q2 CY22. 

“I don’t think cost escalation has come to an end, although anecdotally here in Australia you are hearing that things like steel and staff, the pressures on those things are starting to ease. The biggest single input is energy (through oil). We could see another spike in the oil price, and if that happens then you certainly will see further cost escalation,” says Mr Forwoord.

Jeremy Gray has a solid investment thesis when it comes to identifying opportunities in a rising gold price environment, stating: “Ultimately, if you think the market (gold price) is going to go up, you’ve got to buy every high cost producer there is, and forget about the low cost producers.”

Whereas Zach Riaz can see some weakness in the US dollar once the Fed shows signs of moderating the pace of their rate hikes, stating that:

“The US dollar is very overbought, it’s a crowded trade. I’m not sure how many times investors have to see this story. When something becomes so crowded, you only need a slight change in the underlying mechanics of the broader economy – a stabilisation of inflation or a slight pivot of tone from the Fed – and you will see that crowded trade get unwound.”

Last week, John Forwood, Roscoe Widdup and Zach Riaz joined us online for the first installment of The Insider: Investing in Gold Summit, where we discussed what has driven the recent performance of the gold price and how it is expected to perform in 2023. Click here to watch the session replay.

Join us next Wednesday, 30th November at 12pm (AEDT), for the second and final installment of The Insider: Investing in Gold Summit, where we will be joined by companies operating within the gold market, including a gold explorer and a multinational producer. Click here to register for the session. 

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