Gold slides as bond yield & US dollar strengthens, is this an opportunity? 

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Gold prices slid further to below USD1,700 an ounce levels, falling on the second consecutive day in reaction to the rising US bond yields and the strengthening of US dollar.

Gold spot price (USD /oz) Source: Eikon Refinitiv

The gold spot prices (XAU) traded at USD 1,693.95 an ounce sliding over ~5.2% in the past 30 days, seeing the lowest levels in the last 9 months. In August 2020, gold had rallied to the record levels of over USD 2,073 per ounce.

The US 10-year Treasury yields continued to surge, last week while the US dollar continued to strengthen further.

While the rising bond yields and strengthening of Dollar continues to drag the gold prices down, the resurgence of jewellery demand along with the investment demand might drive the prices of the yellow metal in the coming times.

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As per the energy and resource quarterly (December edition), the demand for jewellery in China and India, the two largest consumers, dropped 25% and 48% (y-o-y basis), respectively. The report further states that the physical gold demand would surge by 25.7% during the current calendar year.

Further the global budget deficits and inflation are anticipated to maintain the glitter of gold through 2021. The investors are cautious over the ballooning fiscal deficits due to the pandemic. The economic activities declined sharply and the governments across the globe had to offer stimulus packages.

A high inflation wave may follow the deficits in the budget. The past trends also indicate that the equity markets do not stand well against the inflationary forces, while the gold outperforms all major asset classes.

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Australian gold industry

Australian gold has consistently been among the major exported commodities since the start of the modern gold rush in the 1970s. The country's gold export ranked fourth on the total export value basis, followed by iron ore, coal and petroleum gases.

Switzerland and China are among the leading importers of Australian gold. However, the country's total gold export decreased by 4.9% y-o-y in September ending quarter of 2020 to settle at AUD 7.0 billion. A decline in exports to China and the UK were the fundamental reason for the drop in export. 

The country has the world’s largest economic demonstrated resource of gold. The Australian gold production rose by 4.8% y-o-y in the September ending quarter of 2020 to touch 81 tonnes. Fosterville mine and Boddington mine’s production rose significantly by 2% and 4.8% respectively during the September quarter, mainly due to higher grades of gold and mill throughput increase. Australia is forecasted to become the world’s leading gold producer in 2021.

The overall gold consumption is anticipated to rise by 3.1% in 2021 and 4.1% in 2022, touching the mark of 4,122 tonnes in 2022. Double-digit demand is forecasted in China and India, mainly driven by the jewellery sector. Europe and the US's gold demand are also expected to revive in the coming years but relatively slower.

Australia’s earning from gold exports are expected to hit record values of AUD 30 billion in 2020-21, up by 23%, driven by surging demand and higher exports.

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The market participants have taken a cautious stance on the gold stocks since the underlying commodity is trading soft. Let us look at a few gold stocks listed on the ASX that are closely tracked by the market participants.

Newcrest Mining Limited (ASX:NCM) is a leading gold miner with gold assets in Australia, Papua New Guinea and Canada. The operational mines include Cadia, Telfer, Lihir and Red Chris, while Wafi-Golpu in PNG is in the advanced development stage.

Newcrest had produced 391koz of gold from Cadia and 378koz gold from the Lihir mine in 1H FY21. Production from other mines includes 185koz from Telfer mine and 24koz from Red Chris mine.

The company has a market cap of AUD 19.14 billion. The stock last is trading AUD 23.17, down 1.15%, Its 52 weeks high and low stand at AUD 38.15 and AUD 20.7, respectively.

Evolution Mining Limited (ASX:EVN) controls four gold mines -- Cowal, Mt Carlton, Mt Rawdon, and Mungar in Australia. Red Lake in Canada and the Ernest Henry copper-gold project are two of its overseas interests. The company has a total mineral resource of 26.2Moz and an ore reserve of 7.3Moz. It has shared a production guidance in the range of 670-730koz with AISC to lie between AUD 1,240/oz and AUD 1,300/oz for 2021.

The shares of the company are currently trading at AUD 3.83. The company holds a market cap of AUD 6.68.

Northern Star Resources (ASX:NST) controls three gold projects in Australia -- Jundee, Kalgoorlie and Pogo. NST has a total reported reserve of 173.641 Mt @ 1.9 g/t with 10.849Moz of gold as of 30 June 2020. Northern Star is among the leading fifteen global gold production companies.

NST has provided production guidance in a range of 940-1,060 koz of gold for the year 2021. Northern Star had unveiled its merger with all-Australian gold growth company Saracen Mineral Holdings.

The company has a market cap of AUD 11.14 billion. NST is trading AUD 9.5 a share. Its 52 weeks high and low stand at AUD 17.03 and AUD 8.8, respectively.

Regis Resources (ASX:RRL) operates the Duketon Gold Project and McPhillamys Gold Project in Western Australia and New South Wales, respectively. The company has produced 172,977 oz of gold with total sales revenue of AUD 401 million in 1H FY21.

The company also provided a guidance in the range range of 355,000 - 380,000 oz with an AISC of AUD 1,230 to AUD 1,300 per ounce for FY21.

The shares of the company are trading at AUD 2.995, down 1.15%.  The company has a market cap of AUD 1.55 billion.

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