Ann: March Quarter Operating Update, page-20

@Gwaihir, that is a good assessment of the headwinds for gold, and quite likely how things will play out. I do appreciate the time you put into your posts, and you got me thinking......

One thing that has me intrigued is what will happen in terms of the demand side dynamics for gold? It has been fascinating to see the under investment in both oil and coal over the last few years, and the impact that this has had on prices recently. Obviously, the war in the Ukraine has also had an impact on energy prices, as it has with gold prices. But the reduction in investment in both oil and coal development, due to an unrealistic ESG push, set the scene for pricing pressure from the demand side and has led to strong support for both commodities. I can't help but wonder if at some point something similar will happen with gold.

Narrative plays a powerful role in financial markets, and it seems to me that in recent years gold miners have suffered somewhat from the pressure of the "expectation" of the reduction of QE and the raising of interest rates. While gold prices have been generally quite strong, despite the volatility, I suspect that some fear a repeat of 2013. I know that I am sensitive to it. But if that narrative were to change, and people started to realise that gold is simply becoming more expensive to produce, could that mean that those who really want it or need it will just have to pay more?

The pricing pressures in the sector are real. I've already been hit by developers who have chosen not to develop but sell off their assets instead, because it is just too expensive to build a mill. I've really only been investing for around a decade, so my experience is limited, but I understand that this has happened in previous decades and eventually the market has re-balanced and the gold priced has increased. I suspect that inflation was inevitable, after all how long can you go on printing money before its value decreases. However, the impact of COVID could well be a catalyst that sets off a chain of events that transforms financial markets, finally jolting us out of a low interest rate and low inflation environment (and mindset). Gold may well have an important role to play in this scenario.

I understand that the demand for gold is different and you can't push the comparison too far. However, as the cost to produce any commodity increases, investment tends to decrease until demand takes over. I am not arguing for peak gold per se, but gold is a finite resource, and it is getting harder to find decent deposits. I can't help but wonder at what point prices just have to rise due to demand pressure.

Only time will tell, but your post gives an excellent summary of not only the headwinds for gold, but also the potential pressures that could lead to significant under investment in the gold space. This will obviously take years to play out, and the gold market is reactive and complicated, so there are many factors to consider. But I would not be surprised to see a significant increase in M&A activity over the next year or so, as the gold market re-balances itself. And who knows, DCN might even be a beneficiary of this?

So with this in mind I will continue to hold DCN, but it has been a frustrating hold. There are some promising signs, and I am looking forward to the NTM assets finally coming on line, but it is going to take a while.

Anyway, I guess I am just using your post to think out loud. I don't know how this will play out, or what the future holds. But your post certainly gave me food for thought.

Thanks.