Considering Gold: demand hits a two-year high

by Ina King (Potgieter) May 24, 2022

Forbes Magazine Editor-In-Chief, Steve Forbes, said that: Gold is a constant. It’s like the North Star.

Indeed, gold continues to be the constant commodity and the investment of choice, in part because of its high value and in part because of its sensitivity to fluctuations in demand.

Gold demand has recovered from the impact Covid-19 had on global markets. According to the latest World Gold Council report (published in April 2022), gold demand year-on-year has increased by 34% to 1 234 tons.

A number of factors are driving the demand for gold (and pushing up the gold price!), including:

  • The Ukraine war – political uncertainty generally prompts investors to put their money into ‘safe haven’ commodities
  • Inflation
  • Growing consumer demand for gold jewelry
  • Demand for gold used in electronics.

Consider these pertinent World Gold Council report findings:

  • Demand for gold exchange traded funds (ETFs) climbed, reaching levels previously seen in 2020
  • Central banks continue to buy gold, with net buying having “more than doubled from the previous quarter”.
  • Demand for electronics is prompting a demand for gold, at a level last seen in 2018.

This growth in demand may be good news for Africa’s gold mining companies (especially in Ghana, which has quickly become one of the world’s top producers of gold, as reported here).

However, mines are facing a significant challenge, in that gold reserves are dwindling. World Gold Council data showed that discoveries of high-grade gold have been in steady decline. This is cited as the reason why major mining companies have been spending less on exploration, and instead, investing in ways to make the most out of their existing reserves. Available deposits are located at greater depths below ground, meaning that mining companies must consider more sophisticated methods of recovery.

This McKinsey report sheds light on refractory ores as a potential area of growth for gold mining, but also makes the point that refractory ore mining is more costly. Pertinently, the mines that will succeed, are those that factor in higher capital and operational costs, and optimise their mine designs and plant performance through digitization.

Gold mines are also under pressure to become more sustainable. Decarbonization and the utilization of renewable energy supply are among the major concerns for mining companies, but this, too, requires a considered investment in new infrastructure and technology. We’ll be watching the likes of Sibanye-Stillwater, which has announced plans to implement renewable energy.

In the medium term, gold mines and investors will be capitalising on the current high demand for gold. But modernization and investment into new methods, technologies, and resources, will be key to sustain this sector.

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