Gold SWOT: Geopolitical tensions between the US and China are driving demand for gold as a safe haven

Strengths

  • The best performing precious metal of the week was platinum, up 4.47% as Impala Platinum reported lower production for the quarter. Rough diamond prices have continued to climb, unmarked by deteriorating consumer confidence, with Anglo American reporting rough prices of $213 per carat for the first half of 2022. Although erosion in disposable incomes generally catches up In diamond markets, supply disruptions from Russia have kept rough diamond customers on edge. Anglo American managed to favor ‘value over volume’ and diamond earnings beat consensus estimates for the first half of the year.
  • Torex Gold reported strong second-quarter 2022 results this week. The company reported adjusted earnings of $0.66 per share, significantly beating the consensus estimate of $0.50 per share. Pre-reported silver production of 123,000 ounces increased approximately 10% from first quarter production. “Our strong production, combined with continued discipline in cost containment, delivered robust revenue, operating cash flow and free cash flow generation this quarter,” said the President and Chief Executive Officer. from Torex, Jody Kuzenko.
  • Gold extended its gains later in the week, Bloomberg reports, as geopolitical tensions between the United States and China persisted, boosting safe-haven demand. Bullion is hovering near a four-week high as the fallout from US House Speaker Nancy Pelosi’s visit to Taiwan keeps markets on edge, the report explains. The Bloomberg Dollar Spot Index was little changed after slipping earlier on Thursday.

Weaknesses

  • The week’s worst performing precious metal was silver, down 1.79% and ending a two-week run with the strong jobs report on Friday. Dundee Precious Metals announced its second quarter results after previously announcing consolidated gold production of 72,900 ounces and copper production of 8.8 million pounds. Adjusted earnings per share (EPS) of $0.17 missed the consensus of $0.21.
  • Eldorado Gold also reported second quarter operating and financial results after announcing production of 113,500 ounces. Overall, the quarter came with rising costs, which fell short of consensus expectations. Production guidance of 460-490,000 ounces was maintained, with the company now expecting production in the lower half of the guidance range. Gold production, however, saw a 22% increase from the first quarter of 2021, boosted by strong production and mine development at Lamaque.
  • South Africa’s Royal Bafokeng Platinum reported weaker than expected first half results, as highlighted in the company’s recent business statement. The company reported a 58.1% drop in half-year profits, hurt by falling metal prices and rising mining costs, Kitco News writes. Its overall earnings per share, the main measure of earnings in South Africa, fell to 7.67 rand in the six months to June 30, from 18.32 rand.

Opportunities.

  • AngloGold Ashanti was one of the strongest gold stocks on Friday after announcing it was considering selling off some of its smaller assets to focus on bigger deals at lower cost. Achieving scale is a challenge in the gold industry. Some companies have chosen to grow faster through known asset acquisitions because exploration results can be unpredictable. AngloGold had previously reduced its risk by selling its South African assets, but leadership at the top level has restarted over the past year and now we seem to see part of their strategy starting to unfold. Management noted that projects capable of producing 300,000 ounces per year were more their focus and projects that could possibly reach 120,000 ounces per year were best left to a smaller company to operate.
  • Mineros SA, a long-standing dividend-paying gold stock currently boasting an indicated yield of 9.92%, reported its most recent quarterly gold production of 74,062 ounces, an increase of 10% from the same quarter in 2021. The company also announced that it remains on track for annual guidance. Mineros listed on the Toronto Stock Exchange in late 2021. With the latest financial statements filed, Mineros traded at a price-to-earnings (P/E) ratio of 4.93 and its current yield on the invested capital is 10.90%.
  • According to the Royal Bank of Canada (RBC), Centerra Gold announced the conclusion of the agreement with the Kyrgyz government regarding the transfer of Kumtor. They continue to see this deal as removing a large surplus for Centerra shares and increasing management flexibility in funding growth after 2024 (as well as potential for additional cash returns, either through buyout or dividends). higher).

Threats

  • JPMorgan remains very concerned about the effects of the recession on downstream automotive customers and light vehicle production, and thus the potential downside risks to palladium prices in the second half of 2022 and into 2023. However, the upbeat comments of global original equipment manufacturers (OEMs) so far in the second quarter alleviates some of the bank’s short-term concerns pointing to improving volumes in the second half, supported by robust pent-up demand and inventory of exceptionally low vehicles globally. JPMorgan thinks it’s premature to get bullish on palladium’s outlook, given the risks to autos in a recessionary scenario.
  • Royal Gold’s newest stream, Cortez, is among the highest caliber assets in the entire gold sector in terms of scale and duration (1.1 million ounces of production at lower quartile costs) . It sits in one of the best jurisdictions in the world and maintains high value in a royalty market where precious metals investment opportunities are scarce. Nevertheless, the transaction is also the highest value paid for a royalty and there is significant dilution for Royal Gold.
  • SSR Mining recorded strong EPS which was driven by tax accounting. EBITDA (earnings before interest, taxes, depreciation and amortization) was towards the lower end of the consensus range despite higher sales volumes and revenues, compared to consensus, as costs were also higher. Consolidated production forecasts are unchanged, but management has made significant upward revisions to its cost forecasts for the year.




Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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