Hope renewed as gold breaks through US$1,900 for first time since January

Australian gold hopefuls are breathing a sigh of relief as the gold price reaches six-month highs after extended lows. A week ago, gold hit US$1,900 an ounce, for the first time this year since early January. Since then, it has traded at just below that mark, reaching a peak of US$1,899 an ounce on Monday, trading at US$1,891 an ounce when Australian markets closed on Wednesday and $1,898 this morning. This comes after it dipped to lows of US$1,681 an ounce in March. What’s behind the movement? Investors have been tipping more money into gold of late, particularly following recent plummeting cryptocurrency prices, as it is seen as a safe haven. US bond yields have fallen to a near one-month low, with investors believing the US Federal Reserve is some way off from tapering its economic stimulus. The US dollar has also weakened, while gold’s strength has also been bolstered by statistics from the US Labor Department, which revealed 559,000 jobs were added in May, below estimates and hopes. Davide Bosio from Shaw and Partners recently told Proactive gold hopefuls could take confidence from the upwards movement. “It is certainly looking very, very solid, the trend has been strong and it has been from just under US$1,700 and it’s been a nice, gradual move,” he said. “The gold bulls out there have something to smile about.” Basel III and gold The gold price may also be affected by the new Basel III regulations on gold. Basel III is a set of international regulations concerning bank capital adequacy, stress testing, and overall market liquidity. Originally introduced in 2009 following the global financial crisis, Basel III is designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand. Several aspects of these agreements will come into effect on June 28, 2021, for European banks and on January 1, 2022, for the UK - and it will make gold a risk-free Tier 1 asset. “These changes mean anyone who wants to use assets or instruments, they need to be predominantly backed by a physical commodity like a metal, below that instrument,” Bosio told Proactive. “For example, if you’re buying an ETF it needs to be backed by gold, not just a contract. “We’re still trying to understand what this means for the gold market. What I can tell gold investors out there is it potentially means the unwinding of instruments and banks will be buying physical gold. “We’re not quite sure how it will play out yet, but it is an interesting theme and one to keep an eye on.” Aussie hopefuls Perseus Mining Ltd (ASX:PRU) (TSE:PRU) (OTCMKTS:PMNXF) (FRA:P4Q) is one of Canaccord Genuity’s top 16 stock picks for the June quarter across all sectors. Canaccord said: “PRU’s 200kozpa Yaoure was commissioned on time and budget by the end of 2020. “Successful delivery of the project is expected to see PRU’s Group production increase by ~90% from FY20 to ~500kozpa by FY22. “We expect a material increase in earnings and FCF as a result (FY22e FCF yield >30%), noting that at that run rate, PRU would then rank as a Top 5 gold producer on the ASX. BUY rating; target price: $1.95.” Similarly, Canaccord also raised its target price for Bellevue Gold Ltd (ASX:BGL) (OTCMKTS:BELGF) to $1.25 following an upgrade in global resources to 8.5 million tonnes at 9.9 g/t gold for 2.7 million ounces. An accelerated drilling program is underway at Bellevue’s Western Australian eponymous project, aimed at increasing and upgrading the resource estimate at Marceline and the Deacon North discovery, as well as the open pits for inclusion in a stage two feasibility study. Meanwhile, Alkane Resources Ltd (ASX:ALK) (OTCMKTS:ALKEF) (FRA:AK7) has extended the life of the Tomingley Gold Operations mine in central New South Wales out to at least 2031, following a decision to mine the Roswell and San Antonio satellite deposits. The current plan shows the production of around 745,000 ounces of gold for the period, with processing ramping to a 1.5 million tonnes per annum feed rate. And just for fun The world's largest-known gold rock specimen, King Henry, is now on permanent display at the Perth Mint after being sold for $3 million. - Daniel Paproth