ETFs
Gold SWOT: China gold ETFs added $253 million, marking sixth month of inflows
Strengths
- The best performing precious metal of the week was platinum, up 3.94%, largely due to the downward trend in demand for electric vehicles, which translates into increased demand for the metals of the platinum group in the short term. According to Bank of America, China gold ETFs continued to see inflows, adding $253 million and marking the sixth consecutive month of inflows. Gold ETF purchases in China are driven by weak stocks, a weakening local currency and falling bond yields. Chinese gold ETF holdings are now at an all-time high.
- During the first quarter of fiscal 2025, Asante Gold produced 53,379 gold equivalent ounces, compared to 51,372 gold equivalent ounces in the first quarter of fiscal 2024. The increase in gold production was primarily the result of increased ore processed and gold recovery at Chirano, according to Bloomberg.
- Pan American Silver has provided an exploration update that highlights the potential for significant resource growth at several assets. New drilling results at Jacobina, El Peñon, La Colorada and Huaron continue to demonstrate resource replacement potential, with La Colorada and El Peñon showing particularly significant potential, according to Bank of America.
Weaknesses
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The worst performing precious metal of the week was gold, down 0.58%. Stronger-than-expected manufacturing activity, expanding for a second month, and services data at its highest level in two years led to a sell-off in gold at the end of the week. According to the World Gold Council (WGC), around 20 central banks surveyed plan to increase their bullion holdings over the coming year, so there still appears to be a solid floor set by market forces.
- According to Bank of America, investor interest in gold is a little more moderate. The price rally has run out of steam in recent weeks and risk reversals are showing less interest in buying on the upside. This confirms that a rate cut from the Federal Reserve may well be necessary to trigger enough investor buying for the yellow metal to rally again.
- Polished natural diamonds are in a downward spiral, with prices continuing to fall in June across all sizes. More importantly, Morgan Stanley sees little evidence that prices have reached an inflection point, with the world’s largest diamond jewelry retailer, Signet, reporting that 1Q24/25 same-store sales fell 9%. over a year.
Opportunities
- According to BMO, Snowline Gold has announced an initial resource estimate for the Valley Gold deposit located within the Rogue project. This was highlighted by an indicated resource of 76 Mt at 1.66 g/t gold, giving 4.05 million ounces, and an inferred resource of 81 Mt at 1.25 g/t gold. gold, which gives 3.26 million ounces.
- Scotiabank initiated coverage on Snowline Gold with an Outperform rating and a C$9 price target. The company’s flagship project is Rogue, an exploration-stage gold project in the Yukon, which the company calls “one of the most exciting gold discoveries in recent years,” citing long intervals of gold mineralization near surface encountered over a large target area, with several areas remaining open and numerous nearby targets requiring follow-up exploration work.
- Harmony Gold Group’s total production for the financial year ending June 30 is expected to exceed guidance by 1.55 million ounces, while overall sustaining costs will be comfortably lower at R920,000 per kilogram, as expected, according to Bloomberg .
Threats
- Scotia expects Agnico Eagle Mines to update its costs and capital based on (1) a higher gold price, which impacts royalties, (2) the exchange rate USD/CAD previously at 1.30 (2024 forecast is 1.34) and (3) adjustments to account for inflationary pressures. It is important to note that costs will be affected by changes in assumptions relating to the price of gold, exchange rate and inflation. They expect total cash costs to increase from the reported all-in sustaining cost (AISC) of $943 per ounce in 2022.
- According to Bank of America, China’s physical markets are a little sluggish but remain generally buoyant, noting that jewelry sales continue to hover around their seasonal highs. Likewise, the Chinese domestic market continues to trade at a premium to international prices. Furthermore, the Chinese silver market is also highly sought after, as domestic prices are trading at a premium. This is rare and a reversion to the mean is possible.
- Fitch has affirmed Kinross Gold’s issue-level rating on the senior unsecured credit facility, senior unsecured term loan and senior unsecured notes at BBB. The ratings and outlook reflect Fitch’s view that Kinross will maintain an average mine life of at least 10 years, an average cost position in the second quartile of the global cost curve, and average annual production of at least 2 million ounces of gold equivalent. Additionally, the ratings and outlook consider that the company will prioritize debt repayment while EBITDA net leverage is above 1.7x and will generally manage EBITDA leverage below 2.3x. These could be aggressive assumptions.
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