The gold mining industry has seen $2 billion in projects completed through the first five months of this year, twice 2014’s pace. This points towards that the precious metals industry, despite stagnant prices, remains stalwart amid decreasing demand at the numerous retail levels.
In the first quarter 2015, Paris asset manager Carmignac Gestion purchased 11.65 million shares of Goldcorp. “The perception that mining equities show good value is starting to spread,” according to Hedley Widdup, a fund manager at Melbourne-based Lion Selection Group. “Since the start of this year, there has definitely been a change in sentiment.”
Thomson Reuter’s GFMS holds a $1,170 price target per ounce for this year, with a 2016 forecast of $1,250. “We felt that finally it looked as though you might be able to pick up projects,” said Marc Prefontaine, Chief Executive of Canadian gold miner Orla Mining.
Annual gold mine production grew for the sixth straight year in 2014, increasing 2% to a record 4,114.4 tons. Mine production grew 2% to 729.2 tons in Q1 2015. The price decline in precious metals had undermined the bottom line for miners. Demand for gold has fallen across sectors, from technological applications to dental gold. Overall Jewelry consumption fell 6.7% in Q1 2015 compared to Q1 2014, while retail purchases of physical bars and coins has decreased 17% compared with one year prior.
In the US, physical gold demand declined 6% compared to the same period in 2014 – the lowest level of physical gold demand since Q1 2007. This includes a decline of 13% in retail investment demand, accounting for 31% of US demand during the period.
There are many inherent risks to gold exploration and mining, such as political conflicts, environmental hazards, industrial accidents, unexpected geological conditions, labor force disruptions, unavailability of supply and so on and so forth. Despite all of this, there remains strong demand to tap into this market in consideration of global financial and economic volatility. The GFMS prediction of $1,250 reflects this sentiment.
“There has been more interest from generalists at the broker conferences for meetings,” said David Harquail, Chief Executive of gold royalty company Franco-Nevada Corp. “Often these generalists have no positions in the gold sector.”
“I don’t think commodity prices are going to dramatically go up from here, but I do think that the individual companies’ ability to cut costs will differentiate their performance,” he said. In the gold sector, he favors South Africa’s AngloGold Ashanti.
“There is recognition that there is value in the sector and the market is starting to sense that the companies are better managed now,” said Joseph Forster, portfolio manager at Van Eck.