India raised their import tax on Gold from 7.5% to 12.5% yesterday. It is meant to dampen demand (and collect revenue, of course). India are the 2nd largest importer of Gold in the world.
Naturally the supply and demand dynamics are going to see the PoG take a hit.
Sometime back, I was researching the movements in the Gold price and I read that the fall in 2013 was attributed to India lifting their Gold import tax to 6% in Jan13.
I think big financial players had caught wind of this coming, selling off Gold equities recently. We retailers are always the last to know.
After the announcement we saw the PoG fall last night.
It bounced back though. Perhaps because JP Morgan announced a catastrophic outlook for the PoO to reach $380.
Bloomberg front page: JPMorgan Sees ‘Stratospheric’ $380 Oil on Worst-Case Russian Cut
Thinking it through, the post GFC QE did not trigger inflation as the PoG then suggested it would. It was funding sent direct to the "too big to fail" Banks and was cemented in place by reserves settings of the Dodd Frank Act.
It follows that the India Gold Import tax did not trigger the fall in the 2013 PoG but was just one prick that came along to burst the bubble.
"This time its different". Hmmm, never a good thing for an investor to say. Nevertheless, COVID QE reached everyone and the current inflation was inevitable.
Since the War with Russia began, economic sanctions imposed by the USA saw Russia respond with deals to sell Oil in Roubles, Gold or Bitcoin. They were all attacked.
The Rouble bounced back stronger than ever, Bitcoin has fallen from over 45,000 while the PoG has only been affected in terms of the fiat currency it is expressed in. A few commentators have been predicting the DXY could rise to 120 in the current war games. In that event, the US$PoG would fall while the A$PoG would maintain.
If the DXY reverted to its mean this century, the US$PoG would rise to over US$2,100.
My thought is that Gold is not a function of inflation but a multiple of the total costs to produce it. Its attraction is that it is a metal that does not rust and therefore is revered through ALL cultures throughout human history. Its network effect is so entrenched, it supersedes all standards of value in human folklore. Flakes of gold have been found in Paleolithic caves dating back as far as 40,000 B.C.. Humans have accumulated knowledge in our time ... but not wisdom. The sabre/bone rattling of monkey politics continues. We are still the same as since the missing link genetically engineered us by fusing our 2nd and 3rd chromosome, which separated us from other Primates.
From a chartist point of view. The share price may go up, or down, or may stay the same. Trust me, I'm always 100% right.
Fundamentally though, I feel that some young turks working for US Instos and Fundies have sold off Gold equities in expectation of the attacks on Gold. Firstly by the US Fed protecting the US$ and perhaps they received prior notice of the Indian Gold Import tax. The movement in Gold equities is always seen as a prelude to the PoG itself.
Will the US Fed crash the economy (which they seem to be threatening and thereby create disinflation) or will they crash the US$? Another negative GDP quarter about to be announced, aka a recession, which together with high inflation is stagflation. The USA need to protect their dollar but they also need inflation to erode their debt. Alternatives include finding a new cheap source of energy or deleting the elderly to transfer wealth to the more financially mobile youth, to stimulate the economy. The latter alternative plan hasn't quite worked.
FWIW, I did a comparison yesterday of the last time NST was at this share price.
The NST share price was $6.82 on Aug18, when they released their 2018 Annual Report.
The PoG was ~A$1,200 although it averaged about A$1,300 for the year. AISCs were A$1,029. Production was 575kozpa. Ore Reserve was 4moz. Cash at Bank of A$443m. No debt. Issued shares of 613m.
Today the PoG is A$2,635. AISCs should be ~A$1,600. Production should achieve ~1.6mozpa. Ore Reserve is 20moz. Cash at Bank of ~A$600m. No debt. Issued shares of 1.15b.
Twice as many shares now sharing that EBITDA of A$1.6b, however 2018 EBITDA was 1/10th of that at around A$160m. Plus 5 times the ore reserve making today's NST in the top 10 Gold producers in the world, whereas in 2018 they were in the top 25.
While the Kalgoorlie Golden Mile resource may be generous, it must be remembered that it has been mined for almost 130 years and this is the first time in its history it has been owned by one Company. Resource extensional drilling almost a given. Shared boundaries often involve sterilised sections which prevent mining development. No more, the KCGM Optimisation Plan represents the synergies this project can finally achieve. For this reason alone, the Company commands a premium valuation compared to other Gold miners.
NST Price at posting:
$6.81 Sentiment: Buy Disclosure: Held
(20min delay)