Gold price set to increase despite challenges

Despite challenges that may cause the price of gold to fluctuate, it is set to remain high this year, owing to “uncertainties linked to the stacked electoral calendar globally”, says leading trade credit insurance, debt collection and information services company Coface Africa economist Aroni Chaudhuri.

The gold price can be influenced negatively or positively, causing it to fluctuate because of an array of geopolitical and economic factors, including both expected and unexpected global events, such as war, monetary policy tightening and increased interest rates.

“When we observe gold prices in 2022/23, there is a clear increase [in gold investment] right after the onset of the [Ukraine] war, [with the commodity proving its worth as a] ‘safe-haven asset’.”

However, Chaudhuri notes that this was proceeded by a decline, after the beginning of the monetary tightening cycle of the US Federal Reserve, followed by the other major central banks in advanced economies. As interest rates became more favourable in safer markets, investors had an opportunity to shift their assets to those markets instead of investing in gold.

However, since October 2022, the price of gold has remained high, as the energy crisis in Europe gave rise to concerns about a global recession. Further, the war between Hamas and Israel also caused the gold price to reach new heights.

In the case of South Africa, Chaudhuri indicates that there are concerns of “geological barriers” that pose a threat to the industry, as there are growing concerns of not being able to supply enough gold to meet demand in the future: gold reserves with high ore grades are more difficult to access, with few replacement assets under development or being explored.

Technical limitations have also made gold extraction processes more expensive and challenging in South Africa, which might significantly reduce the mining output from the country.

“This is because more South African mines are becoming less accessible or completely inaccessible”, and owing to a “decline in ore grade in existing deposits”, Chaudhuri notes.

Additionally, declining profitability, increasing costs, price fluctuations, skills shortages and technological limits in the mining of gold in South Africa, coupled with a focus on mining alternative rare earth minerals, could see the country’s production capacity plummet, he tells Mining Weekly.

Despite these concerns, Chaudhuri forecasts a positive outlook for South Africa’s gold production in 2024.

Gold output has been increasing since 2022 and is likely to continue doing so for as long as global demand continues to elevate the price of the precious metal, incentivising mining or producer countries to increase supply, he concludes.