As the world tunes in to watch the Paris Olympics, the most coveted prize for all athletes is the gold medal. Historically, the gold medal has symbolised the pinnacle of achievement, reserved for the best of the best. It’s been 120 years since the first gold medals were awarded at the 1904 St Louis games, with the medals varying in size, weight and composition ever since. This year, gold medals will be awarded in 329 different events, with the organisers minting 1,694 gold medals, to be handed out to individuals and teams in the Olympics and Paralympics.
Yet, the story of gold extends far beyond athletic triumphs. Over the past six to twelve months, the gold sector has witnessed significant shifts, driven by changes in supply and demand, economic uncertainties, and evolving investor sentiment. These changes offer a fascinating glimpse into the metal’s enduring allure and its role in the future economy.
The global gold market has always been sensitive to a myriad of factors, from geopolitical tensions to changes in monetary policies. Recently, the interplay between supply and demand dynamics has painted a complex picture. On the supply side, production has faced several challenges. Major producers like China, Australia, and Russia have encountered difficulties ranging from regulatory hurdles to environmental concerns. In China, the world’s largest gold producer, stricter environmental regulations and safety checks have slowed down operations, impacting overall output.
Similarly, in Australia, the second-largest producer, challenges such as labour shortages and higher operational costs have affected production levels. More recently, due to the woes of other commodities including nickel and lithium, the number of available personnel has increased, easing production constraints for several operations.
In Russia, the third-largest producer, geopolitical tensions and international sanctions have played a role in disrupting mining activities. Despite these challenges, some countries, notably Canada and the United States, have managed to increase their output, albeit modestly. These shifts in production have had a notable impact on the global supply of gold. According to data from the World Gold Council, global gold production in the first half of the year showed a slight decline compared to the same period last year. This reduction in supply has partly contributed to fluctuations in gold prices.
On the demand side, gold has maintained its appeal in various sectors. Central banks continue to be major buyers, driven by a desire to diversify their reserves and hedge against economic uncertainties. In particular, central banks in emerging markets such as India and Turkey have ramped up their gold purchases. The demand for gold in the jewellery sector, which took a hit during the pandemic, has shown signs of recovery. With economies reopening and consumer confidence improving, there has been an uptick in jewellery purchases from India and China, which are traditionally the largest markets for gold jewellery.
Investment demand, however, has been a mixed bag. While some investors have flocked to gold as a safe haven amid ongoing economic uncertainties and fears of inflation, others have been drawn to alternative assets such as cryptocurrencies. This dichotomy in investor sentiment has led to periods of volatility in gold prices. Over the past year, gold prices have experienced significant swings.
Over the past 12 months, the price of gold (in US dollar terms) has increased by 22% to US$2,397 per troy ounce, after a solid gain of 11% in the previous 12 months. For the Australian miners, the performance has been even better with the gold metals up nearly 24% in the past 12 months to all-time record highs.
Whilst many of the gold producers have seen solid gains in their share price over the past 12 months, gold explorers and developers still appear to have further growth potential with share prices not quite hitting their highs.
Looking ahead, the future of gold appears to be intertwined with the broader economic landscape. Analysts from Kitco.com suggest that gold’s role as a safe haven will remain crucial, especially in times of economic instability. With inflationary pressures showing no signs of abating and central banks navigating the delicate balance of monetary tightening, gold’s appeal is likely to endure.
Furthermore, gold’s role in technological advancements cannot be overlooked. The demand for the metal in the electronics sector, particularly for use in semiconductors and other high-tech applications, is expected to grow. This could provide an additional layer of support for gold prices in the coming years.
A fun fact to finish with. The gold medals at the Olympics are made of silver and coated with ~6g of gold. The 1,694 gold medals in Paris will require 326 ounces of gold valued at US$784k, whereas the silver required for the gold and silver medals totals 65,356 ounces with a value of $1.9 million.
White Noise communications is provided a fee for service working with companies which may have exposure to commodities or securities mentioned in these articles. All articles are the opinion of the author and are not endorsed by, or written in collaboration with, our clients.