A report by the World Gold Council (WGC) Gold Demand Trends revealed that global annual gold demand (excluding OTC) in 2022 increased by 18%, hitting 4,741 tonnes – the highest annual total since 2011.
The WGC found demand for gold was propelled by hefty central bank-buying and persistently strong retail investment.
WGC senior market analyst Louise Street said of gold’s performance, “Last year we saw the highest level of annual gold demand in over a decade, driven in part by colossal central bank demand for the safe haven asset. Gold’s diverse demand drivers played a balancing act as rising interest rates prompted some tactical ETF outflows, while elevated inflation spurred on gold bar and coin investment. In the end, overall investment demand was up 11% on the previous year.
“Turning to 2023, economic forecasts are pointing to a challenging environment and a likely global recession which could lead to a role reversal in gold investment trends. If inflation comes down, this could be a headwind for gold bar and coin investment. Conversely, continued weakening of the US dollar and the moderating pace of interest rate hikes could have positive implications for gold-backed ETF demand. We will likely see jewellery consumption remain resilient, bolstered by a release of pent-up demand as China re-opens; but possibly dragged down by the squeeze on consumer spending if there is a more severe downturn. While there are several possible outcomes, gold has a precedent for performing well in turbulent economic times, highlighting its value as a long-term, strategic asset.”
Certainly, bullish sentiment abounds.
"The upward trend is still intact," RJO Futures senior market strategist Frank Cholly told Kitco News. "I am disappointed the market hasn't managed to get above $1,966. We had quite a run, and the market is getting a breather," Cholly said.
He added that when gold moves above $1,966 an ounce, it wouldn’t be long until they hit the $2,000 an ounce level.
Inflation and gold
As with most commodities, as well as goods and services, affected by current macroeconomic movements, central banks around the world are playing a major role in price fluctuations.
What central banks do in terms of inflation is important to understand in the context of the gold price and the currencies they hold.
Now, central banks hold paper currencies and gold in reserve. In diversifying their monetary reserves—away from paper currencies and into gold—the price of gold typically rises.
Globally, annual central bank demand more than doubled to 1,136 tonnes in 2022, up from 450 tonnes the year before and to a new 55-year record high. Purchases in Q4 2022 alone reached 417 tonnes, bringing the total for the second half of 2022 to more than 800 tonnes.
Gold also rises along with inflation and a fall in the value of the dollar. So, put simply as inflation ratchets up, so too does the price of gold – which is good for the central banks that stockpile the metal.
With all that in mind, gold is traditionally used as a hedge against inflation.
We saw that last year with gold demand the strongest it has been in over a decade.
But what about rising interest rates?
This week we saw the US Federal Reserve raise its benchmark interest rate by 0.25%, giving little indication that it is nearing the end of this hiking cycle.
Next week, the Reserve Bank of Australia (RBA) is likely to make a similar move.
Interestingly, central banks combat rising inflation by increasing interest rates, which can act as a headwind. When interest rates go up, so does the opportunity cost of holding gold. This has created a tug of war in relation to gold’s performance.
But it seems for the moment that inflationary influences are winning the war over interest rates and that could be because despite the constant barrage of rate rises, historically rates remain low.
As reported by Australian Resource and Investment: “Gold has historically performed well amid high inflation. In years when inflation was higher than 3%, gold’s price increased an average of 14%, and in periods where the US Consumer Price Index averaged over 5% on a year-on-year basis gold increased by an average of nearly 25%”.
So, while gold does face serious headwinds from rising rates and a potentially stronger US dollar, it is offset by the need for effective hedges, persistent inflation and market volatility linked to monetary policy.
What are the other influences on gold?
1. Supply and demand. Gold, like anything else is subject to the laws of supply and demand. The higher the price, the lower quantity demanded.
2. Uncertainty. Economic uncertainty causes investor uncertainty, which is when gold becomes a hedge as it retains its value regardless of economic conditions.
3. The US dollar. Gold is tied to the US dollar and has an inverse relationship with it. The stronger the dollar, the lower the gold price.
4. Jewellery and industrial demand. The US, India and China purchase a lot of gold for jewellery production. High demand for jewellery means higher gold prices. The same is true of demand for electronics and equipment with gold components. Jewellery demand softened slightly in 2022, down 3% at 2,086 tonnes. This weakness was largely driven by the marked drop in Chinese annual jewellery demand, down 15% as consumer activity was curtailed by ongoing COVID-19 lockdowns for most of the year. The gold price rally in Q4 also contributed to the annual decline in jewellery demand.
Gold in Australia
According to the World Gold Council, consumer demand for gold rose 8% to 30.9 tonnes in 2022, despite a 6% year-on-year drop in Q4, attributed largely to a 21% drop in bar and coin demand, from 5.2 tonnes in Q4 2021 to 4.1 tonnes in Q4 2022. The country however saw a 22% increase in jewellery demand from 2.7 tonnes in Q4 2021 to 3.3 tonnes in Q4 2022, contributing to a total 30% rise in jewellery demand in 2022.
Andrew Naylor, Regional CEO, APAC (ex-China) at the World Gold Council, said: “The 30% growth in Australia’s annual jewellery demand was partly due to base effects: demand in 2021 was very weak thanks to strict COVID restrictions at that time. Nonetheless, annual demand was healthy at 11 tonnes, aided by a 22% year-on-year rise in Q4 demand to more than 3 tonnes.”
A look at gold sector activity in the last quarter
There were several small cap explorers and miners that made great strides in the last quarter as the gold price rose. We take a look at some of their achievements below.
Auteco Mining
Auteco Mining Ltd delivered strong results across regional and near mine activities during the December 2022 quarter. The company believes these results position the company for exceptional growth in 2023.
Notably, drilling around the historic Pickle Crow deposit continues to yield exceptional results, paving the way for an increase to the current 2.2 million ounces @ 7.8g/t inferred gold resource.
Further to this, sampling of outcropping veins at the Metcalf prospect, approximately 6 kilometres north-west of the resource, returned highly significant results during the quarter, including assays of 569.0g/t, 35.5g/t, 27.4g/t and 9.0g/t gold.
The company started its regional winter exploration program with two diamond drill rigs carrying out follow-up drilling at high-grade Talia and bonanza-grade Cohen-MacArthur gold discoveries.
Aureco had $5.4 million in cash and cash equivalents at December 31 2022, had signed a pivotal exploration agreement with the Mishkeegogamang Ojibway First Nation (MOFN) for the Pickle Crow Project in Ontario, Canada and appointed experienced North American non-executive director Kevin Tomlinson.
Carnavale Resources
Carnavale Resources Ltd (ASX:CAV) had a successful quarter with reverse circulation (RC) drilling completed at the Ora Banda South Gold project and diamond drilling results received from the Kookynie Gold Project At the Ora Banda South Gold Project.
CAV completed the first program of wide spaced RC drilling at the Carnage Prospect following up on excellent high-grade gold results from CAV aircore drilling in the regolith. In October 2022, CAV elected to exercise its Option pursuant to the agreement to acquire 80% of the Ora Banda South Gold Project from Western Resources Pty Ltd.
At the Kookynie Gold Project results were received from a program of three diamond tails for 490 metres of diamond drilling that was completed at McTavish East testing down dip extensions to the mineralised structure and providing detailed geological information for future resource work.
“CAV returned to the Ora Banda Gold Project to drill test the substantial gold anomaly at the Carnage Prospect. The RC program was wide spaced as a first pass program The excellent CAV aircore programs defined a substantial gold anomaly at Carnage with associated shears and a newly mapped intrusion. The drilling confirmed the geological interpretation defined by the aircore and geophysics,” said Carnavale CEO Humphrey Hale.
Great Boulder Resources
Great Boulder Resources Ltd (ASX:GBR) continued to concentrate on ongoing exploration programs at its flagship Side Well Gold Project near Meekatharra in Western Australia.
RC drilling concentrated on priority targets at Mulga Bill and Ironbark, with 34 holes completed prior to the rig leaving site. The results from these programs saw ongoing growth at the high-grade vein (HGV) zone at Mulga Bill, as well as strike extensions and high-grade intersections defined at Ironbark.
A mineral resource estimation is underway for Mulga Bill and Ironbark.
During the quarter GBR also announced the acquisition of tenement E51/1995 at the southern end of the Gnaweeda greenstone belt and approximately 10 kilometres east of Mulga Bill.
The tenement sits on the same structural corridor as that hosting the St Anne’s and Turnberry deposits, at which Meeka Metals Ltd (ASX:MEK) has enjoyed considerable recent success.
At the end of December, GBR had a cash balance of $2.2 million.
Taiton Resources
Taiton Resources Ltd (ASX:T88) started trading on the ASX in the December quarter, but in the background had completed heritage agreements for its Highway and Challenger West projects.
The company also selected a contractor to conduct the initial IP Survey at the Highway Project. A request to conduct the heritage survey over the IP survey area has been submitted.
“The Taiton team has done an excellent job in completing the task in what is a very challenging equity market,” T88 managing director Noel Ong said.
“The task of sharing our optimism for our projects in the company is now completed. The hard work now begins in repaying the faith our shareholders have entrusted in management.
“We have hit the ground at a fast pace as we are looking to get drilling happening in the first quarter of 2023. Our heritage agreements have been agreed and we are now organising heritage surveys.
“As we mentioned in our previous announcement, we have selected our consultants to conduct and complete an IP Survey at the Highway Project. The purpose of the IP Survey is to give the company a greater definition of drill targets.”
Westar Resources
It was an acquisition fest for Westar Resources Ltd (ASX:WSR) in the December quarter.
Westar is in the process of acquiring the Mindoolah Lithium-Gold Project, where historically mapped pegmatites have been confirmed and gold-in-soil anomalism remains untested.
It will also acquire the Olga Rocks Lithium-Gold Project, where historical drilling and DD fieldwork identified thick Albite-rich pegmatites with potential of up to 1-kilometre strike extent.
Historical gold intercepts by previous owners indicate proven mineralisation. Westar acquired the Fairy Well Prospect at Gidgee North, with historically recorded production grades of up to 36 g/t gold and completing consolidation of the Gidgee North Project.
It also divested the Gidgee South Project to Aurumin Ltd (ASX:AUN).
An aggressive exploration program is planned for CY23, with soil sampling at Mindoolah complete and circa 5,000 metres of aircore drilling at Gidgee North to start in late Q1CY23.
“Westar has used Q4CY22 to prepare for an aggressive exploration program in CY23 as well as extending our exploration portfolio and commodity targets in the rapidly growing rare-metals sector,” Westar managing director Karl Jupp said.
“Both Mindoolah and Olga Rocks project acquisitions contain identified and untested pegmatites in addition to advanced gold prospectivity. This presents a rare and compelling opportunity to explore for LCT (LithiumCaesium-Tantalum) mineralisation with the ability to fast-track exploration in combination with potential gold targets. We’re eagerly awaiting commencement of the Gidgee North aircore drilling program whilst progressing drill targeting and permitting for Mindoolah and Olga Rocks drilling.”
Bellevue Gold
Bellevue Gold Ltd (ASX:BGL) is fully-funded to continue accelerating its underground development and exploration at its namesake WA gold play with cash of $120 million and undrawn debt of $165 million.
It was a good quarter for the company, with an oversubscribed institutional placement raising $60 million (before costs) and subsequent share purchase plan (SPP) of $25 million to accelerate underground development, open more mining fronts to de-risk production, step-up exploration drilling and increase financial flexibility during construction and ramp-up.
Subsequent to the end of the quarter, the project Mining Proposal and Mine Closure Plan was approved by the WA Department of Mines.
Underground development continues to advance well with progressive ramp up achieved. The second jumbo was commissioned in October 2022 and the third arrived on site in December 2022. All equipment is new and full utilisation has been maintained with full staffing levels.
Construction progress at the Bellevue processing facility as at 29 January 2023.
Development is continuing ahead of schedule with the first two jumbos averaging 300 metres per month per jumbo.
The third jumbo has now been commissioned, allowing for the start of ore driving in the Upper Armand mining area.
Horizon Minerals
Primary activities during the quarter for Horizon Metals Ltd included the continuation of the CY2022-23 multi-element project generation and new discovery exploration program and release of results, resource modelling and mine optimisation studies for Ore Reserve estimation, advancement of the Cannon, Penny’s Find, and Rose Hill underground projects, joint venture assessment and review of further consolidation and divestment opportunities.
The Cannon open pit, looking northeast.
Horizon also completed the in-specie distribution to eligible shareholders of 20 million shares in Richmond Vanadium Technology after the successful IPO and listing of RVT on the ASX.
Horizon now holds 8.94% of RVT who are now fully funded to complete the BFS after raising $25 million (before costs).
Total cash at bank as at December 31, 2022 was A$1.6 million. In addition, Horizon holds investments in ASX listed companies with a current value of approximately A$6 million.
Alto Metals
Alto Metals Ltd (ASX:AME) reported ongoing shallow oxide gold results during the December quarter which lay the foundations for an updated global Resource at the Sandstone Gold Project.
Outstanding results from Indomitable resource drilling, identified high-grade targets at the historic Oroya and Hacks gold mines.
Alto also appointed respected gold industry executive Mark Connelly as chairman.
The company has a strong cash position of $4.4 million at the end of the quarter and no debt.
“The December quarter was another quarter highlighted by outstanding drill results from Indomitable, including a stand-out 25m @ 7.5 g/t from 41 metres. These results continue to demonstrate the huge exploration upside at Sandstone and importantly, pave the way for the release of our updated mineral resource in the March quarter,” Alto managing director, Matthew Bowles said.
“In parallel with the resource work, we have been progressing a regional review of the multiple advanced prospects at Sandstone, with the historic Oroya and Hack gold mines highlighting the quality of the prospects in our pipeline.
“We are also pleased to have Mark Connelly join the Board of Alto Metals as Chairman. Mark has an outstanding reputation in the market and his appointment to the Board further strengthens the corporate and industry experience of Alto, which will be invaluable as we continue to advance our Sandstone Gold Project.
“It is an exciting time for us as a company and for our shareholders, as we continue to build on the significant progress we have made over the past twelve months, an updated mineral resource coming this quarter, a number of assays results pending and rigs about to start drilling again.”
RC drilling at Indomitable.
Tietto Minerals
There were several highlights in the December quarter for Tietto Minerals Ltd (ASX:TIE), including the first gold pour at the Abujar Gold Mine.
Tietto poured gold weighing 12.89 kilograms in its first smelt at Abujar Project in Côte d’Ivoire, becoming West Africa’s newest gold mine.
Tietto Team celebrated Abujar first gold pour.
The first gold was achieved within 12 months of breaking first ground.
Meanwhile the processing plant and tailings storage facility (TSF) is fully operational, with all critical spares and reagents on site.
Cash at bank is $47 million and the Abujar Gold Mine is fully equity funded and is unhedged.
The Abujar DFS forecast is for 260,000 ounces of gold in its first year of production.
Perseus Mining
Perseus Mining Ltd (ASX:PRU, TSX:PRU, OTC:PMNXF) produced 521,221 ounces of gold at US$941 per ounce AISC in 2022.
The company recorded several highlights including:
- gold production in the December half year and 2022 calendar year exceeded respective production guidance ranges of 240,000 to 265,0000 ounces and 492,850 to 517,850 ounces;
- AISCs in both the December half year and 2022 calendar year were below the cost guidance ranges of US$1,000 to US$1,100 per ounce and US$980 to US$1,025 per ounce respectively;
- at 130,911 ounces, gold production for the December 2022 quarter achieved an annualised rate of nearly 525,000 ounces and was only slightly less than Perseus’s record gold production of 137,460 ounces achieved in the September 2022 quarter;
- December 2022 quarter weighted average AISCs (US$983 per ounce) were 12% above the September 2022 quarter AISC due to overall reduced gold production at Sissingué and inflation;
- as forecast last quarter, quarterly gold sales increased by 144,387 ounces to 203,154 ounces; average quarter-on-quarter gold sale price increased by 6% to US$1,748 per ounce;
- average quarterly cash margin of US$765 per ounce of gold was in line with the prior quarter’s cash margin of US$766 per ounce;
- notional cashflow from operations of US$101 million in the quarter resulted in the full calendar year notional cashflow total of US$402 million, 46% more than in the corresponding period;
- Perseus’s strong performance is forecast to continue in the June 2023 half year with gold production of 230,000 to 260,000 ounces at an ASIC of US$1,000 to US$1,200 per ounce;
- Perseus on track to produce 498,370 to 528,370 ounces at an ASIC of US$1,000 to US$1,100 per ounce for the financial year ending 30 June 2023; and
- Perseus further strengthened its financial position with available cash and bullion of US$405 million (A$594 million), and no debt, at year end, an increase of US$76.2 million net cash this quarter and US$243 million (A$325 million) or 150%, year-on-year.