An analysis made public by Australia’s Datt Capital states that the price of gold, which has risen from $1,400 per ounce to over $2,075 per ounce in the past year, will remain firm in the coming months.
According to the investment firm’s managing director and CIO, Emanuel Datt, the yellow metal’s strong appreciation has been driven by a confluence of environmental factors such as uncertain geopolitical and social environment, record low-interest rates, negative real rates in major fixed income markets, and accommodative monetary policy.
“The combination of these factors has led to fears of stagflation, where economic growth is sluggish whilst inflation rises. We see this becoming more prevalent across all major economies,” Datt said in the review. “Also possible is a deflationary scenario where sovereign defaults occur despite accommodative monetary policies on a global scale. Both situations are positive for gold investors.”
In his view, the low-interest-rate environment, in particular, has made gold a far more attractive prospect for investment than ever before.
“When interest rates are higher, for example at 5%, there is a real and tangible opportunity cost involved in holding non-yielding assets such as gold. Whereas the effect is diluted significantly in an environment where real rates of return are negative or zero,” the executive said. “Another factor in play is gold ETFs, which are booming with retail investors.
Professional investors are also taking a keen interest with more looking beyond investing in conventional money market instruments to allocate capital towards gold in a hunt for diversification.”
For Datt, certain Australian companies are going to fare well in this context.
In detail, he highlighted the cases of Saracen (ASX: SAR), whose Carosue Dam and Thunderbox properties have strong organic growth potential in addition to competitive production costs; Newcrest (ASX: NCM), a firm that has 93 Moz in gold resources across its operational assets, produced 2.2 Moz in FY20 and possesses global Tier 1, long-life assets at Cadia and Lihir; and Evolution (ASX: EVN), a company that has 22 Moz of resources, produced 750 Koz in FY20 and whose flagship Cowal project contains 9 Moz of resources.