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Stagflation Is On Tap: What Will Happen to Gold Prices?

Economists and strategists are now starting to warn about stagflation, which combines a stagnant economy with inflation. While the number of disappointing…

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This article was originally published by Investor Place

Economists and strategists are now starting to warn about stagflation, which combines a stagnant economy with inflation. While the number of disappointing economic reports continues to grow, it’s also looking like inflation is less transient than the Federal Reserve has claimed.

Source: Shutterstock

So what happens to gold prices during stagflation? Such an environment is usually good for the yellow metal, but there’s much more than meets the eye this time around.

Data Indicates Stagflation

Economic growth was roaring along in the first half of the year, but more recently, it has slowed while inflation has taken off. Economic data started disappointing in August as inflation data points surprised to the upside.

The World Gold Council attributes much of the economic weakness to fears about new Covid-19 variants and global supply shocks, which are also contributing to growing inflation. Other factors driving inflation include increased commodity prices, worker and parts shortages and problematic global distribution. Inflation has now risen to multi-decade highs. The combination of slowing economic growth and rising inflation suggests stagflation for the current quarter.

The council noted that since the pandemic began, the economy has already moved through all four phases of the business cycle, from goldilocks through stagflation, deflation and reflation. The goldilocks and stagflation periods early last year were mild, but the deflationary and reflationary periods later in the year were sharp.

How Assets Fare During Stagflation

Between the first quarter of 1973 and the second quarter of 2021, gold was the clear winner of the major asset classes during stagflationary periods. Other defensive assets and real assets also did well, but not nearly as well as gold.

For example, the problem for Treasuries is that they face a tug-o-war during stagflation between the negative impact of inflation and the positive impact from the flight to safety. Corporate bonds did worse than Treasuries, although they were still in the green during stagflationary environments.

The World Gold Council believes that fixed income did well because equities did so poorly during stagflationary periods. It noted that average equity returns during times of stagflation had been the worst during such times. Equity investors are squeezed by rising costs and falling revenues.

Gold does so well during stagflationary environments because it benefits from the elevated risk environment, high inflation and falling real interest rates. Interestingly, the U.S. dollar is usually strong during stagflation, which is normally bad for gold. However, a stagflationary environment creates the perfect combination of factors to drive strong performances in both gold and the dollar.

The Last 2 Decades

Over the last 20 years, gold, global broad bond indices and inflation-linked bonds are the only assets to offer positive returns across all four economic phases. However, the World Gold Council states that gold’s annualized average weighted returns in U.S. dollars are often double those of bonds.

If stagflation does occur, the consensus calls for it to be short-lived. Real GDP is expected to accelerate during the fourth quarter amid slowing infections with the delta variant and pent-up demand to support economic growth.

However, the World Gold Council expects prices to remain “sticky” due to the ongoing supply chain issues, which it doesn’t expect to be resolved anytime soon. If consensus ends up being correct, reflation could resume in the fourth quarter, bringing both inflation and growth.

Reflation tends to be positive for risk assets, driving especially strong returns for commodities and equities. Gold usually does well during reflationary environments as well. However, Treasuries usually do poorly during reflation.

Gold in 2021

The World Gold Council noted that gold prices haven’t benefited from record-low real rates this year, which has been a concern for investors. Treasury yields have climbed more than 50% since January, but inflation expectations have been rising too, which kept real yields in the red.

More recently, shifting monetary policy has weighed on gold prices. The yellow metal’s price fell almost 4% in September, driven by higher U.S. yields, futures positioning and strength in the dollar. The impact from monetary policy more than outweighed positive demand trends in China and India during the month.

September was the second straight month of declines in the gold price, bringing the yellow metal down 8% year to date. However, gold wasn’t the only asset to decline in September. Treasuries, corporate bonds and stocks all declined last month, and the World Gold Council suggests it was due to deleveraging. Margin debt for equities was at a record high during the second quarter.

Price Reactions

Last month, gold prices moved sharply after three major events. The yellow metal reacted positively to U.S. employment data early last month, but that gain was quickly eliminated. Gold jumped on cooler CPI data for August as investors hoped monetary tightening would be delayed, but it again plunged below its support level. Finally, gold gained amid news of the Evergrande situation later in the month, but it failed to pick up momentum again.

The World Gold Council also noted apathy toward the yellow metal in the futures market as sentiment via long positioning on COMEX turned more and more negative throughout the month. Gold exchange-traded funds had another month of outflows, although it was less than in August.

The council believes that movement in the 10-year Treasury yield as measured by opportunity cost was one of the main drivers in gold’s weakness last month. However, the metal didn’t have much of a reaction when yields rose nearly 25 basis points in the last week of the month.

What All This Means for Gold Going Into Q4

The consensus expects the Fed to start tapering its asset purchases in November, and interest rate hikes could follow close behind. Both moves will likely serve as a headwind for gold, but other factors will impact the price of the yellow metal.

Central banks in other countries are continuing their support, especially the European Central Bank and the Bank of Japan. Additionally, as inflation continues its run, gold should see a benefit as a hedge against a reduction in purchasing power.

“Gold’s performance will likely remain choppy as the markets continue to assess the potential impact of economic indicators on central bank policy,” the World Gold Council write. “The need for portfolio protection and diversification is ever present, but the more optimistic economic outlook could weigh on gold investment and sentiment.”

On the date of publication, the author did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at [email protected].

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Author: Michelle Jones

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REZ begins second milling campaign at Granny Venn

Special Report: Hot on the heels of its first successful milling campaign at Granny Venn, Resources and Energy Group is … Read More
The post REZ begins…

Hot on the heels of its first successful milling campaign at Granny Venn, Resources and Energy Group is starting its second round of gold processing at the Lakewood Mill.

Just a week after news that Resources and Energy Group (ASX:REZ) beat expectations in the first milling campaign at Granny Venn, the company is today starting its second campaign.

A total of 25,000 tonnes has been booked in and milling is expected to take 10 days, with about 18,000 tonnes already delivered to the mill, crushed and ready for processing.

REZ’s progress at Granny Venn means January is shaping up to be a highly productive month for the project, with between 40,000 and 50,000 tonnes of ore expected to be mined.

The Richard Poole-led company and BM Mining are also investigating options to enable recovery of previously unrecognised ore in the western highwall of the project, which is up to 50m long. Planning work is also underway to drill test the western extent of the ore body at the operation which is 130km north of Kalgoorlie.

REZ and BM Mining Services completed the milestone maiden gold pour at Granny Venn in late October after it restarted the first mining activity at the site in 23 years.

Granny Venn is within REZ’s flagship East Menzies Gold project which is a +100km2 package of contiguous mining, exploration and prospecting licenses, all located within a significant gold province.

BM Mining is part of the BM Geological Services (BMGS) group of companies that have been active in the mining industry in the Goldfields of Western Australia since 2003.

 


 

 

This article was developed in collaboration with Resources and Energy Group, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post REZ begins second milling campaign at Granny Venn appeared first on Stockhead.


Author: Special Report

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Alicanto says its multi-target Swedish monster is ready to roar…. and starting to stir interest in the North American Funds

Special Report: Location: deep in the mineral rich Bergslagen, Sweden. Alicanto straddles the Sala Project, its 2021 high-grade silver-zinc-lead acquisition…

Location: deep in the mineral rich Bergslagen, Sweden. Alicanto straddles the Sala Project, its 2021 high-grade silver-zinc-lead acquisition which has set the 2022 stage for a much anticipated year of growth.

The Backstory

Alicanto snapped up the project – previously one of Europe’s largest and highest grade mines having already yielded some 200Moz of silver at an average grade of 1,244g/t – backing the belief there was still plenty left to discover.

And drilling by Alicanto Minerals (ASX:AQI) and previous operators have since proven this belief to be true, with assays returning exceptional wide, high-grade results such as:

  • 87m grading 40g/t silver and 5.3% zinc;
  • 14.0m at 30g/t silver and 7.6% zinc;
  • 11.9m at 15g/t silver, 8.1% zinc and 0.1% lead; and
  • 9.85m at 203g/t silver, 6.4% zinc and 0.8% lead.

Never seen, entirely unknown

The exceptional results follow the Swedish Geological Society releasing to the company 12,225m of shallow, historical drilling never previously viewed in the public domain.

Within this package was a previously unknown zone about 200m southeast of the Prince Lode with an intercept of 87m @ 5.3% zinc and 40 g/t silver further backing the potential of the Sala project to host significant resources.

Even better – half of these historical assays are located within the Stage 1 resource target area, saving AQI circa 5,000m of drilling cost and time, while the remaining assays will give the Stage 2 program a head start.

Investors have already begun aligning themselves with the project’s prospectivity, with North American and Australian large institutional investors snapping up $7m worth of AQI shares in a private placement that closed last month.

Sala will soon confirm proof-of-life with the company expecting to deliver a maiden resource estimate in the first quarter of 2022.

Alicanto projects. Pic: Supplied

More than just silver-lead-zinc

While Sala has proven to be remarkably successful, it’s not the only card on Alicanto’s table.

The company also owns the nearby Greater Falun project – producer of some 28 million tonnes of high-grade copper-gold-rich polymetallic ore over the best part of a millennium.

Wolf in volcanogenic clothing

Incredibly (and despite over a thousand years of evidence where Falun has yielded):

  • half-a-billion tonnes of zinc at 5%, 400,000 tonnes of copper at 4%
  • 160,000 tonnes of lead at 2%, 380,000 tonnes of silver at 35 grams per tonne
  • and five tonnes of gold at 4g/t,

AQI now says the mine is not what it seems.

Alicanto believes previous interpretations of Greater Falun as a volcanogenic massive sulphide system are just plain wrong, positing instead that the project is actually a monstrous skarn-hosted system.

While most of its activities in 2021 have focused primarily on Sala, the company has certainly not forgotten about its older project.

Besides already returning some intriguing drill results, AQI says it’s already carried out field work, submitting applications for a potential drilling program in 2022.

Both Sala and Greater Falun projects are located in the Bergslagen region of Sweden, a Tier-1 mineral belt which hosts Boliden’s massive Garpenberg mine and Lundin’s Zinkgruvan.

Happy new year

Speaking to Stockhead, Managing Director Peter George boiled the focus of 2022 down to the top five: silver, zinc, lead, copper and gold.

“With a good mix of precious and base metals – Alicanto’s not reliant upon one particular metal,” he noted.

“Our view is that the fundamentals haven’t changed in all of these metals with inflationary pressures traditionally having a positive impact on the precious metals and demand for base metals likely to continue to grow as the world recovers from the COVID 19 pandemic and stimulus packages encouraging expenditure on infrastructure.

“After a long period of a lack of investment in exploration and development of base metal projects, there is also a growing supply versus demand problem growing for most of these metals with most already in a yearly deficit that can only be fixed by exploration success.”

Alicanto’s conservative market cap of about $46m is inviting a significant re-rating next year given the maiden resource for Sala is due in the first quarter of 2022.

Further growth could come from extensional drilling along strike and at depth from the maiden resource and regional exploration outside of the resource target area.

 


 

 

This article was developed in collaboration with Alicanto Minerals, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Alicanto says its multi-target Swedish monster is ready to roar…. and starting to stir interest in the North American Funds appeared first on Stockhead.





Author: Special Report

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Resources Top 5: We have a new contender for copper-gold hit of the year

Emmerson pulls up “stunning” 117m at 3.38% copper from 75m at the ‘Hermitage Project’ KGL announces record assay of 61.4% … Read More
The post…

  • Emmerson pulls up “stunning” 117m at 3.38% copper from 75m at the ‘Hermitage Project’
  • KGL announces record assay of 61.4% copper at the ‘Rockface’ target
  • Krakatoa unearths ionic type rare earths at the ‘Rand’ gold project in NSW

Here are the biggest small cap resources winners in early trade, Wednesday December 8.

 

EMMERSON RESOURCES (ASX:ERM)

Is this one of the best drill hits of the year?

ERM has pulled up a “stunning” 117m at 3.38% copper from 75m in drilling at the ‘Hermitage Project’ in the NT.

Due to drilling difficulties the vertical hole (HERC003) was abandoned in high grade mineralisation –3m at 14.91g/t gold and 4.24% copper, to be exact. Amazing stuff.

This drill hole will be continued with a diamond ‘tail’ in 2022, ERM says.

Four RC holes were drilled by ERM in this program, testing an area ~200m east-west but focussed on the theory of high-grade mineralisation hosted in almost vertical ‘pipes’:

Long Section (within 30m wide corridor) of drill holes HERC002 and 003. Also note pending assay results (HERC004) and historical intercepts (HEDGD).

An adjacent vertical hole (HERC002) also returned impressive numbers­­­, including:

  • 18m at 1.40% copper and 0.23% cobalt from 117m, and
  • 24m at 4.2g/t gold from 159m (including 3m at 17.61g/t).

Hole HERC001 encountered no significant mineralisation, while results from HERC004 are pending.

“Whilst it is still early days, the metal zonation and mineralisation in drill hole HERC003 displays increasing gold and copper grades with depth – the subject of future diamond drilling,” ERM managing director Rob Bills says.

“Although based on limited data (i.e. rock chips), it appears that HERC003 intersected a subvertical, brecciated, high grade metal rich feeder zone which has channelled and concentrated the copper and gold and remains open at depth.”

This was a re-rating event for $84m market cap ERM, which is up 125% over the past month. The explorer had $4.5m in the bank at the end of September.

 

KGL RESOURCES (ASX:KGL)

Another standout drilling intercept.

KGL’s main game is the 426,200 tonne (and growing) Jervois copper project in NT, where the plan is to produce 30,000 tonnes of copper per year, plus silver and gold.

A final feasibility study is now underway, as well as drilling to extend mine life to a minimum 10 years.

KGL has just announced a new record assay of 61.4% copper at the ‘Rockface’ target, part of a total intercept of 20.5% copper and 302g/t silver over 4.21m from 698.80m downhole:

High-grade massive sulphide copper mineralisation in KJCD481D6 annotated with assay results.

This is extraordinary, KGL managing director Simon Finnis says.

“Mineralogically, it represents 97% pure bornite [high grade copper mineralisation] and confirms the previous visual estimate,” he says.

“More importantly, together with previous results and the new visual mineral intersections announced here, they demonstrate that the high-grade shoot of massive sulphides has significant dimensions and grades that bode well for the future.

“Equally exciting are the indications from the DHEM geophysics that the Rockface deposit remain open for significant extensions at depth.”

Drilling continues with two drill rigs on site, and this will continue into calendar 2022, “focusing on a strong portfolio of exploration targets and brownfield potential to extend existing deposits”.

The feasibility study is targeted for completion in early 2022.

The $233m market cap stock is flat over the past month, and up 120% year-to-date. It had $18.1m in the bank at the end of September.

 

EMPIRE RESOURCES (ASX:ERL)

(Up on no news)

$14.5m market cap ERL has been bouncing around like a yoyo over the past few trading days on no news.

The busy polymetallic explorer has already drilled 13,000m so far in 2021 at the ‘Penny’s and Yuinmery’ projects in WA, with diamond drilling of some juicy gold, copper, and nickel-copper-PGE targets at Yuinmery due to kick off sometime this month.

ERL would’ve drilled even more if not for issues getting hold of a rig, something the company intends to fix in 2022.

“Our exploration plans for 2022 include the lock-in of a core drilling rig and driller for exclusive use by Empire,” chairman Michael Ruane says.

“This should assist in accelerating at least the drilling component of our exploration programs for the forthcoming period. The rig will be particularly useful for the deep drilling required for the promising Yuinmery targets (eg Smiths Well/YT01).”

The rig should be ready for commissioning this month, he says. ERL had ~$3.5m in the bank at the end of November.

 

KRAKATOA RESOURCES (ASX:KTA)

KTA has unearthed ionic type rare earth (IAC) elements at the ‘Rand’ project in NSW, which the company is mainly exploring for gold.

IAC projects are in demand right now. Typically found in southern China, they are commonly considered to be some of the cheapest and most accessible sources of heavy rare earths.

In June, KTA reported “encouraging” gold assay results from the maiden aircore (AC) drilling program at the Rand ‘Bullseye’ magnetic target.

This drilling was re-assayed for REEs, which returned a highlight 11m @ 1,223ppm TREO from 43m.

“We are still very early in this investigation and can only speculate on the origins of the rare earths, but it is clear they have concentrated in the clay rich saprolite zones above the intrusives as well as within the metasediments surrounding these,” KTA CEO Mark Major says.

“This is the first discovery of clay hosted REE within this area of NSW.

“The company has significantly expanded its land holding over the already large area via applications of additional tenure with similar geophysical signatures and underlying geology.”

KTA also says the Rand area is considered prospective for tin–tungsten deposits and copper–gold porphyries.

The $17m market cap stock is down 3% over the past month. It had $2.5m in the bank at the end of September.

 

FORRESTANIA RESOURCES (ASX:FRS)

(Up on no news)

The freshly listed stock has uncovered new lithium targets at its namesake project in WA, including one neighbouring the world class Wesfarmers/SQM ‘Mt Holland’ lithium mine called ‘Cohn’.

Cohn, ~6km southeast of Mt Holland, covers a previously defined lithium and caesium soil anomaly that is ~14km long. It is one of many walk-up lithium and gold drill targets emerging, FRS says.

“Given the Forrestania Project’s proximity to a world-class lithium mine, a plus one-million-ounce gold camp and several outstanding nickel mines, the exciting challenge for the company’s exploration team was always going to be ‘where to start?’” FRS chief executive officer Melanie Sutterby says.

Gold and lithium drilling is due to kick off before the end of the year.



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Author: Reuben Adams

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