Gold tumbled this week after new U.S. economic data bolstered expectations that the Federal Reserve will be slow to lower interest rates.
Spot bullion had a volatile week as investors analysed the data, before trading down 0.14 per cent at US$2,159 an ounce as of 12 p.m. in Toronto. Gold hit an all-time high of $2,195.15 last Friday.
The shift to lower interest rates is broadly expected to be bullish for gold as the precious metal will become comparatively more attractive compared to bonds, which are currently generating high yields because of high central bank rates.
But that shift won’t happen until central banks cut lending rates, which they’re reluctant to do until they see more proof inflation is heading back toward 2 per cent.
Interest rates aren’t the only factor impacting gold’s price. Substantial buying by central banks in emerging economies such as China has pushed up the price of bullion in recent months and years.
While increased geopolitical uncertainties, ranging from tensions in the Middle East from Gaza to the Red Sea, as well as Russia's conflict war (CTVNews Style) in Ukraine, have further highlighted gold's attractiveness as a safe-haven asset.
Those factors came together in a perfect storm this month, as gold has hit one record high after another.
Gold mining companies, on the other hand, aren’t seeing a pick-up – and in many cases, they’re seeing quite the opposite. The share prices of many producers, including the biggest players in the space – Newmont and Barrick Gold – are testing the lows.
The performance of the S&P/TSX Global Gold Index, a basket of global gold producer stocks, has tracked the performance of bullion closely for much of the past decade, but it has failed to rise during the current bullion run.
That can’t last, one market expert told BNNBloomberg this week.
“The markets are treating these companies as if they are dealing with a $1,400 gold price,” said David McAlvany, CEO and portfolio manager at McAlvany Financial Companies. “So you’ve got a number of major producers trading at extreme discounts to their net asset value, and I think that represents a big opportunity.”
Uranium also finding favour
The other hot metal this year has been uranium, as leading uranium producers are scrambling to meet demand in the face of a surge in interest from governments seeking nuclear power solutions to achieve emissions targets.
The price of the silvery-white metal has experienced a significant upturn after the NYMEX uranium 1st futures contract price hit a new high of US$106.40 a pound on 01 February – it’s now sitting at $83.65 as of 12 p.m. in Toronto. The last time that contract was above $100 was in August of 2007.
The uranium boom is giving once-unprofitable uranium enterprises an opportunity to bridge the supply gap. In Canada and various other nations, proprietors of previously dormant uranium mines are revitalizing operations to meet the newfound demand.
Many of these mines were shut down following the 2011 Fukushima disaster, as uranium prices plummeted and countries such as Germany and Japan began to phase out nuclear reactors.
But that’s changing fast. The International Atomic Energy Agency projects that by 2040, the world will require over 100,000 metric tons of uranium annually – that’s more than twice the amount currently being mined and processed around the world.
Two-thirds of the uranium on earth currently comes from Kazakhstan, Canada, and Australia, and strong demand could see Canada’s share rise even more.
Saskatoon-based Cameco Corp. and Kazakhstan's Kazatomprom, which collectively supply half of the global uranium, have had problems ramping up. Instead of boosting production, they have flagged several operational challenges that could actually reduce their uranium production below their anticipated output in the forthcoming years, which may have been some of the big sparks behind the recent price rises.
Smaller players with previously uneconomical mines are stepping up now that higher prices have changed the math.
On Wednesday U.S. uranium miner Ur-Energy said it plans to build out its Shirley Basin mine in Wyoming, which would nearly double the company’s permitted mine production capacity to 2.2 million pounds.
Other U.S. miners such as IsoEnergy, Energy Fuels, and Uranium Energy have all made announcements in recent months that they will be restarting production at idled mines; and in January Toronto-based Denison Mines said itself and joint venture partner Orano Canada would be restarting uranium mining operations at their McClean Lake Joint Venture in northern Saskatchewan.
Despite recent struggles, Kazatomprom has been incrementally boosting its production after years of functioning significantly below its capacity. Cameco has been doing the same at the world's largest high-grade uranium mine and mill—MacArthur River and Key Lake in Saskatchewan, Canada—after ceasing operations from 2018 to 2021 due to unfavourable market conditions.
“Cameco [assured] the market that they would actually deliver some more production. And I think they can probably do that through the MacArthur River operations,” said Tom Price, global head of commodities strategy at Liberum. “These two giant producers that deliver 40 percent of supply have been underperforming production for about five years. And we think they can turn that around now that the price is really high – and that will drag on price performance over the longer term.”