Gold SWOT: Barrick Gold Has Become Noticeably Fixated on Copper

Strengths

• The best performing precious metal for the week was gold, but still down 2.11%. Despite a "brutal week" for gold, it managed to find support by Friday, indicating a possible floor for the price. Swiss gold exports surged, particularly the shipments to India. This indicates strong demand for gold in India, one of the world's largest consumers of the metal. The rise in exports to Turkey and Hong Kong further suggests increasing global demand for gold.
• Glencore's recent investment in Stillwater provides funds for exploration and development of its nickel projects, particularly the Stillwater West project in Montana. The project is expected to become a large-scale source of battery and precious minerals that are critical in the U.S. and other markets. This investment signifies confidence in the potential growth of the critical minerals sector.
• Gold traders have a close eye on Tokyo these days. The likelihood of Japan intervening to arrest the yen’s slump seems to be ticking higher and should the authorities wade in, the precious metal would be a winner. The playbook was in action last October. When Japan loaded up on yen, gold spiked by 1.8%, although that initial gain failed to stick in the days that followed. Bullion’s rally got underway in earnest from November, when USD/JPY accelerated on the downside helping to spread dollar weakness.

Weaknesses

• The worst performing precious metal for the week was palladium, down 9.65%, and could extend its near 30% drop this year as the auto industry rapidly shifts to EVs. SP Angel analyst John Meyer noted that global EV sales are expected to reach 15 million vehicles this year, potentially displacing 1.5 million to 2.25 million ounces of demand. Gold headed for its biggest weekly loss since early February, reports Bloomberg, after major central banks signaled they’d need to stay hawkish for longer to bring down inflation.

• A surge in gold purchases by Chinese residents, driven by pent-up demand after three years of pandemic restrictions and optimism that the economy would quickly rebound, is starting to slow — yet another sign that the recovery is losing momentum. China vies with India as the world’s biggest consumer of gold bars, coins, and jewelry. The rapid expansion in retail sales of gold and silver jewelry looks to have topped out, rising 24% year-on-year in May to 26.6 billion yuan ($3.7 billion). That is slower than the 44% and 37% growth recorded in the previous two months.
• Anglo American Plc’s De Beers sold a provisional $450 million of rough stones in its fifth sale of 2023, compared with $479 million at the prior sale and $657 million a year earlier. “Following the JCK Show, and with ongoing global macroeconomic challenges continuing to impact end-client sentiment, the diamond industry remains cautious heading into summer,” said De Beers CEO Al Cook.

Opportunities

• According to Bank of America, looking at monthly gold price returns over the past 52 years, January stands out for its strong average return of 1.95%, with the price up 54% of the time. There are three other months with average monthly gold price returns in-excess of the 52-year average monthly return of +0.78%. These are December (+1.37%), September (+1.34%), and August (+1.18%), with the price up 56%, 54% and 58% of the time, respectively. The remaining months all have average returns below the 52-year average monthly return.
• Bank of America notes that holding gold for December and January improves the average return to 3.32% with the price up 60% of the time. Holding gold from December to February further improves the average return to 4.12% with the price up 58% of the time. Meanwhile, holding gold through the summer months (July to September) has worked, but has been less rewarding with an average return of 3.10% and the price up 60% of the time. Gold has historically appreciated in summer ahead of strong Indian demand in October/November.
• For a company with “gold” in its name, Barrick Gold Corp. has become noticeably fixated on copper. The world’s second-largest bullion producer recently approached First Quantum Minerals Ltd. to discuss a potential takeover, Bloomberg reported last week. And while the move was unsuccessful — Barrick’s informal overtures were rebuffed — its interest in buying a $17 billion copper miner provides the starkest evidence yet of a shifting focus at the company whose origins lie in Nevada’s gold veins.

Threats

• According to Scotia, SilverCrest reported that the updated technical report for its Las Chispas mine in Mexico is now expected to be released in July 2023 (previously expected by the end of the second quarter 2023). Scotia expects the updated study to incorporate industry-wide inflationary pressures and as such, it incorporates 40% higher capex and 30% higher AISC in the estimates along with added 8% dilution.
• BlackRock's surprise filing for a U.S. spot Bitcoin ETF has triggered a flurry of similar applications from rival issuers. The filing by the world's largest asset manager suggests that there may be key insights or changing dynamics in the regulatory environment that could lead to the approval of a physically backed Bitcoin ETF. If approved, such a product would offer investors a more accessible and regulated way to invest in Bitcoin, potentially diverting funds away from gold.
• A new gold venture between the Democratic Republic of Congo and an Abu Dhabi-based company must do more to ensure it does not launder metal linked to armed conflict, a United Nations group of experts said. Congo and the UAE’s Primera Group Ltd. launched Primera Gold DRC in January to combat smuggling, according to the government. The venture has not adhered to national and international standards that require companies to ensure their gold purchases haven’t supported violence, the UN experts said in a report published this week. 

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