The chart below highlights that the gold price is, once again, knocking up against the top of a range that has held it since mid-2020. Is the gold price going to finally break through the $2,000 an ounce mark or will this rally also fail?
Investors’ belief that the Fed will soon have to put a pause on interest rate hikes and the rising risk of inflation becoming embedded is probably supporting the recent strength in the gold price. Credit conditions have probably tightened following the collapse of Silicon Valley Bank and rumblings in the banking sector.
For over a decade, central banks have also been aggressively buying gold and the recent restrictions on Russia’s dollar reserves held in Western banks following its invasion of Ukraine is likely to drive further buying. In addition, Russia and China continue to be large buyers of gold.
The gold miners, on the other hand, have not really benefitted as much as one would have expected from the rally in the gold price from $1,200 an ounce in mid-2019 to $1,981 an ounce at the time of writing. And, over the past year, the Philadelphia Gold & Silvers Miners Index is down 20%.
This largely reflects the increase in costs across the gold mining universe given the rise in energy prices and cost inflation in general. In turn, the all-in sustaining cost (AISC) of producing gold has increased 36% from $947 an ounce in late 2019 to $1,289 in late 2022 which has a direct impact on the miners’ margins.
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