The gold #IGCommodityChat: a story of supply and demand

On Thursday 22 November, we sat down with industry experts Simon Popple, director of Brookville Capital, and Ross Norman, CEO of Sharps Pixley, to discuss what the future might look like for gold and other precious metals. Watch the video for the full chat or read the summary below.

Will global gold production continue to rise?

Simon Popple: There is a lot of talk about gold production reaching a peak but, unfortunately, we won’t know until we’ve got there. What is interesting is that the mergers and acquisitions market seems to have picked up. This suggests that the major players are more interested in acquiring junior companies, where there is a known resource, rather than spending their own capital trying to find it – which may indicate that gold is proving very difficult to find.

Is gold discovery uneconomical at the current market price?

Ross Norman: It is only uneconomical for about 10% of producers. If gold fell back to around the $1000 level, then you’d find about 50% of gold suppliers would be producing on an all-in sustaining cost basis. In other words, on a risk-to-reward basis, there would be a downside on gold because of the sheer cost of producing it. Gold has done rather well over the past 20 years, it’s gone up 12.5% year-on-year compounded, so there could be a floor for production there.

Where is the demand for gold coming from?

SP: Well, central banks have become net buyers of gold recently – if you look at the charts, especially with regard to China, India, Russia and Turkey, you can see that gold demand is really going through the roof. If that continues and if other countries hop on the bandwagon, then those central banks could become very active in the market.

Why are central banks hoarding so much gold?

SP: We don’t really know. A lot of central banks want to increase the percentage of reserves that are backed by gold. Typically, gold accounts for around 20% of reserves. But emerging markets have been way under this level for quite a long time, so they have been looking to increase their gold reserves.

RN: Part of the answer might lie in a parallel story, which is the repatriation of gold. We saw the Bundesbank taking its gold back, and there is a discussion underway about Australia and Austria taking their gold back from other major repositories and vaults around the world. In short, I think there is a concern about the macro environment. How bad could it get? I don’t know. But from central bank actions, that they are buying gold and taking it home, it shows you that there is some level of uncertainty.

Watch the full video for more on gold and precious metals

Throughout the discussion, Simon and Ross covered a range of topics, including:

If you’d like to find out more about these topics and more, watch the full gold #IGCommodityChat video.

Our second IG Commodity Chat will be taking place this Thursday at 1pm and will look at everything related to the oil market. Put your questions to industry advisor Malcolm Graham-Wood and IHS Markit’s director of oil, Spencer Welch, by posting on the IGCommodityChat Community page, or using #IGCommodityChat on Twitter or Facebook.

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