Northern Star Resources is one of the biggest gold companies in the world. So as the gold price hovers above $US1700 per ounce (oz), what does the company believe are the key issues facing the sector?
Northern Star managing director and chief executive officer Stuart Tonkin said “sentiment” and “skills” are two of the main concerns facing the wider mining industry.
And when it comes to sector more specifically, he said “people still struggle with the purpose of gold”.
“To me, it’s very simple: it is their currency, and it underpins all the fiat currencies around the world that governments use as that physical asset,” he said to reporters at a Melbourne Mining Club luncheon on Thursday.
“You can try to replace it with a crypto, you can try and replace with some other proxy – or an ETF – but it’s the physical, tangible asset that underpins that currency.”
Tonkin said people can see a clear link between lithium, copper and nickel and a battery future, but there is less clarity around gold, and the purpose of gold mining.
“People still struggle to see why gold is relevant,” he said.
In US dollar terms, gold fell for a sixth consecutive month in September, dropping 2.6 per cent to finish the month at $US1671.8 ($2607)/oz, according to World Gold Council (WGC) data.
But gold wasn’t alone.
“It was a challenging month for most assets, with global equities down 9.5 per cent, global bonds down 5.1 per cent and commodities down 8.4 per cent,” the WGC said in a market report released on Thursday.
“While a relative outperformer and thus a good diversifier, gold wasn’t the crisis hedge it has often been historically, certainly when measured in US dollars. However, for non-US investors, gold performance remains strong year to date.”
The WGC said gold futures fell to their shortest net position in four years in September, while gold ETF outflows continued, with holdings falling 95 tonnes across the month.
“Price resistance under these pressures was, however, quite impressive: gold hit a monthly intra-day low of $US1615/oz but recovered to end the month above $US1670/oz,” the WGC said.
The WGC said the surge in the US dollar – which is up 15 per cent in 2022 as measured by the US dollar index (DXY) – had caused headaches for many assets in the second half of the year, and was becoming a rising burden for central banks.
“The impact on gold has been two-fold,” the WGC said. “First, gold is most commonly quoted in US dollars; so, as it’s numeraire, a stronger dollar necessarily leads to a falling gold price.
“Second, this impact has been compounded in the recent rally by the dollar’s safe-haven demand, creating competition for gold.
“Outside of the US, gold has done well in both nominal and real terms.”
The WGC highlighted three factors that could trigger either a pause or reversal of the US dollar, in turn alleviating pressure on gold.
This included a historically high valuation and positioning in the US dollar relative to DXY components; central bank intervention in foreign exchange markets and/or bond markets; or better aligned bond market expectations.