‘Vaccine Mondays’: Short term gold pain unlikely to hurt long-term gains
Gold prices are still tipped to rise, despite suffering a sizeable fall after pharmaceutical giant AstraZeneca published promising test results on a possible COVID-19 vaccine on Monday..
Gold prices are still tipped to rise, despite suffering a sizeable fall after pharmaceutical giant AstraZeneca published promising test results on a possible COVID-19 vaccine on Monday.
The announcement marked the third consecutive week in which a new vaccine, with efficacy of 70-90 percent has been announced, earning the first day of the working week (when markets reacted) the honorary title of ‘Vaccine Monday’. The release of AstraZeneca’s results followed similar announcements from Pfizer and Moderna in the preceding two weeks.
The news sent stock markets surging, with the local ASX 200 index gaining 1.2 percent the day of the announcement. Gold however moved in the opposite direction, with spot prices falling as much as 2 percent during the day, as investors looked to move out of safe havens and into riskier assets as markets climbed.
Phil Carr, head of trading with international commodities trading firm The Gold and Silver Club, said the yellow metal will remain ‘vulnerable’ in the near-term.
But Mr Carr added this vulnerability is unlikely to hurt the upward momentum that’s so far driven spot prices up roughly 19.2 percent since 1 January.
“The vaccine might kill the virus, but not the vast mountains of debt and economic damage caused by the coronavirus pandemic,” he said.
“Central banks are expected to maintain ultra-loose monetary policies, which inadvertently will lead to higher inflation throughout 2021 and beyond.”
Similarly, global investment bank Goldman Sachs set its 2021 target price for gold at US$2300 per ounce – which would be a new all-time high.
Local miner gears up for production
Rising gold spot prices are also good news for gold miners, which turn a profit selling the precious metal to investors at market price. As a result, gold stocks could make gains in 2021 if gold bulls like Goldman Sachs prove to be right.
Local explorers like Nusantara (ASX: NUS) have continued to develop their assets despite the ups and downs of the gold price. In 2020, the company awarded the front-end engineering and design contracts for its sizable Awak Mas gold project in Indonesia, bringing the company one step closer to production.
The project holds an estimated 1.5 million ounces of gold (and is valued at $US517 million NPV, (5% real ungeared, after tax), from their latest 2020 Detailed Feasibility Study (DFS) Addendum) with mine life and grade above the global average, and production costs well below US$1000/oz.
The DFS indicates that even with a price fall in gold price the project remains attractive. If for example, the gold price were to fall to US$1500/oz, the project would still be valued at US$375M with an internal rate of return of 36 percent with a rapid payback of 2 years.
Next week Nusantara’s Managing Director Neil Whitaker will be speaking at our fortnightly webcast series ‘The Insider’. Click here to book your spot if you would like to attend.
‘The Insider’ is a great way to hear directly from the CEOs of fast growing Australian businesses. You will get valuable insights to their industries and companies future prospects.
The Insider – Event Details:
Date: Wednesday, 2nd December
Time: 12 pm AEDT
Format: Online, 3 x 15 minute presentations
This is a free event. Click here to book your spot.
Reach Markets have been engaged by NUS to assist with private investor management.
Past performance is not a reliable indicator of future performance.
- FX Street, A vaccine is coming soon: What will this mean for Gold prices?
- Gold Price, Gold price chart
- Mining.com, Gold price hits 4-month low on vaccine hopes, strong US data
- Mining Magazine, FEED contract for Awak Mas awarded
- News.com.au, More encouraging vaccine trial results boost oil price, ASX surges
- Seeking Alpha, Gold Miners Fundamentals: Q4 2019
- Seeking Alpha, Nusantara Resources: Digging Into The Updated Feasibility Study
- Stockhead, Awak Mas is Nusantara’s ‘highly profitable’ entry into gold production
- The Edge Markets, Goldman sets US$2,300 price target for gold in 2021
- The New Daily, Pfizer says its vaccine ‘meets all endpoints’ as it plans to apply for regulatory approval
- The Motely Fool, Why ASX gold shares are the worst performers so far today
- ASX Announcement, 29 June 2020, Awak Mas NPV increases by 240% to USD517m
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