Gold coming up Trumps

At $2 877 per ounce gold is currently at a historic high and well on its way to reaching $3 000 in the first half of 2025, but from thereon, the risk is to the downside, says Arnold van Graan, head of market research at Nedbank CIB.

“Even with all the uncertainty in the world, there is just too much momentum behind it,” he told Moneyweb in an interview this week alongside the Mining Indaba in Cape Town.

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Geopolitical risks may dissipate 

Fundamentals driving the gold price higher include geopolitical instability in regions such as the Middle East, and Russia and Ukraine, and uncertainty around the new Trump administration.

These risks, coupled with continued demand from central banks, are the main reasons many analysts have bullish forecasts for 2025.

The World Gold Council (WGC) notes in its full-year Gold Demand Trends report for 2024 that central banks bought a total of 1 045 tonnes of gold in 2024.

Van Graan, however, points out that there is a risk of “over-estimating” central bank buying.

“Most commentators say the likelihood of strong central bank buying is high. But some of the uncertainty that is currently in the world may dissipate. In a year from now, I ask: ‘Will there be a resolution [to] the war in the Middle East, or between Russia and Ukraine?’”

Six months ago, it seemed unlikely, Van Graan adds, but US President Donald Trump may play a role in brokering such agreements.

According to the WGC, there is evidence that supports the idea that central banks can repeat their 1 000 tonnes-plus net buying in 2025.

“Yet, forecasting demand for central banks is inherently challenging given that it’s often linked to policy decisions and not just macroeconomic drivers, leading us to widen the band of uncertainty around our estimate – mostly to the downside,” it notes.

For example, there have been recent announcements of central bank sales of gold to manage currency volatility.

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Market overheating?

Global investment in gold reached a four-year high in 2024, helping fuel gold’s 26% annual return. Annual investment totalled 1,180 tonnes, with a value of $90 billion.

According to the WGC, there are sufficient tailwinds for gold ETFs (exchange-traded funds), over-the-counter (OTC) trade, and futures-based investment stemming from lower interest rates, a softer dollar, and geopolitical risk.

But as soon as gold hits $3 000, one should be wary, Van Graan warns. “Like any commodity or market, you have a blow-up phase where the last 10% or 15% [increase in the price] is just overdone because everyone starts trading for fear of missing out.

“Specifically, when you start seeing retail investors coming in it becomes mainstream. We’re seeing that already where people queue to buy gold coins, and more billboards in town offering to buy your gold.”

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Gold production outlook

The WGC notes that the current high margins provide an incentive for mine production to reach new highs.

There are constraints, though, particularly in South Africa, where gold production fell by 6% after lower mill throughput was reported at mines such as Beatrix (Sibanye-Stillwater) and South Deep (Gold Fields).

The Minerals Council South Africa says export and local gold sales volumes are expected to rise 1.9% and 8.4% respectively in the year ahead, as smelters like Rand Refinery process stockpiled as well as newly-mined gold ore to meet increased demand, both locally and internationally.

Andrew van Zyl, managing director at SRK Consulting, tells Moneyweb that new projects, notably at Harmony Gold, are a source of excitement.

“The cash from the current [high] gold price means the company can self-fund a lot of projects, which makes it easier to develop new projects and extend the life of existing assets.”

The Minerals Council, however, points out that gold exploration in South Africa remains “minimal”, with significant investment redirected to countries like Australia, Chile, and Peru.

“For South Africa, which ranks third globally in gold reserves, competitive electricity costs are crucial to remain viable against other resource-rich jurisdictions like Australia and Canada,” it notes.

“High energy and operating costs for mines in South Africa threaten to undermine the country’s ability to attract investment and capitalise on its substantial reserves.”

This article was republished from Moneyweb. Read the original here.