Gold outshines battery metals at Diggers & Dealers with bullish outlook, despite cautions

While the overarching theme at Diggers & Dealers was battery metals last year, gold outshone other commodities with the metal’s price commanding all-time highs and analysts and miners alike forecasting more rises.

Analysts such as Martin Place Securities executive chairman Barry Dawes and economist Jim Rickards are incredibly bullish on the metal’s outlook, with Mr Dawes telling Small Caps he expects gold will end the year at US$1,600 per ounce.

Both analysts have also openly stated they believe the precious metal’s price could even reach US$10,000/oz in the current bull market.

Don’t get caught up in the frenzy

However, Surbiton Associates director and gold industry specialist Dr Sandra Close has cautioned investors not to get too caught up in the gold frenzy.

She added that a “reasoned forecast” from a reputable source could often be little more than a “guess”.

“Forecasting the price of anything, including gold, amounts to predicting the future.”

She pointed out that analysts are employed by banks, fund managers, stockbrokers and other financial institutions to support recommendations to clients and investors.

However, Dr Close conceded making gold price estimates was “fine”, so long as investors “understand the fundamental shortcomings.”

“If you are a gold producer, a prudent hedging policy certainly makes good sense,” she added.

To hedge or not to hedge

Regis Resources (ASX: RRL) chief executive officer and managing director Jim Beyer told Small Caps he couldn’t say for certain where he thought the gold price was heading.

He did note that the precious metal’s price usually strengthens during “times of uncertainty” and added that with current global political and economic volatility, the situation was uncertain.

Regis is a gold producer that has locked-in multiple hedging contracts over the years including committing 205,000oz of his company’s gold production to a A$1,400-$1,500 per ounce hedging contract – well below the current gold price of A$2,200/oz.

Mr Beyer did point out that under this contract the company was able to sell small amounts into this price – such as 10,000oz, freeing up remaining production to advantage of prevailing gold prices and minimising the impact on profit margins.

When Small Caps asked Mr Beyer if Regis would be contracting further production to hedging contracts, he said it was something the company would consider.

But, he noted hedging contracts are usually made to de-risk an operation when a major capital expenditure was required and that Regis was no longer in this position.

Gold continues reaching for the sky

Speaking with Small Caps, Calidus Resources (ASX: CAI) managing director Dave Reeves said the company had noticed increased interest in its gold project in recent weeks.

He added the interest seemed to be gaining “real momentum” and the only path for gold that he could foresee due to macro levels was up.

Although Mr Reeves couldn’t forecast what price gold will eventually reach, he said he believes the precious metal would continue to hit new highs.

Calidus hopes to begin construction before the end of next year and be producing in a gold price environment of A$2,000/oz and above.

Meanwhile, Northern Star Resources (ASX: NST) chief executive officer Stuart Tonkin pointed out that we were currently in peak production and as production falls away and demand continues to remain strong, a supply gap will widen – triggering price increases.

Commenting on the cyclical nature of the market, Mr Tonkin explained once the price is high enough, lower grade and higher-cost producers will receive more investment to eventually get their gold projects off the ground.

These projects would eventually fill the supply gap and bring the price lower again.

However, he noted that the time-line from discovery to production could be 10 years, which is in-line with the decade-long bull run analysts have been forecasting.