The gold price began Q3 on a relatively high note, but was approaching US$1,800 per ounce by its end.
The yellow metal was pushing back toward the US$2,000 mark at the start of the period, but wasn’t able to maintain that level. The quarter culminated in a precipitous decline that saw gold break through support.
What has caused gold to retreat so quickly? Read on to learn more about what factors have affected its price over the last three months, and about significant gold-related news released during that time.
How did the gold price perform in Q3?
Gold tends to underperform in when interest rates are high, which was the case in Q3. At its July meeting, the US Federal Reserve raised rates for the 11th time since March 2022, adding 25 basis points for a range of 5.25 to 5.5 percent — the highest in 22 years. The gold price fell steadily in the two weeks after the decision, slumping to US$1,885.70 on August 17.
Gold price chart, Q3 2023.
Chart via TradingEconomics.com.
After seeing some support from mid-August to mid-September, gold went into a tailspin to close the quarter at US$1,848.80. The drop came as the Fed announced on September 20 that it would hold rates steady, and as Chair Jerome Powell suggested the central bank is in a good position to deliver a “soft enough” landing.
Central banks continue buying gold
While higher rates continued to put pressure on gold this past quarter, global central bank buying has helped maintain the precious metal’s price level. July and August saw central banks pick up 55 metric tons (MT) and 77 MT of gold respectively, bringing the total to 219 MT for the three months ended in August.
Leading the way is China, which has purchased 155 MT of the yellow metal since the start of the year as it tries to minimize its US dollar exposure. Its central bank currently holds gold reserves of 2,165 MT, accounting for 4 percent of global reserves.
With the Russia-Ukraine war on its doorstep, Poland has also been a significant buyer of gold, adding another 18 MT in August and bringing its yearly total to 88 MT. That moves it closer to its intended buying target of 100 MT for the year.
BRICS meeting turns head
Sanctions imposed on Russia following its invasion of Ukraine in February 2022 have renewed the BRICS nations’ interest in finding an alternative to the US dollar as the global reserve currency.
Member nations Brazil, Russia, India and South Africa are keen to break from the US dollar, but it’s China in particular that has been working for several years to establish its own currency as an alternative, with increasing uptake. When the BRICS countries met from August 22 to 24, some market participants believed they might announce a new BRICS currency — perhaps one backed by gold or another commodity. But ultimately no such announcement was made at the meeting.
Many analysts believe the idea is untenable unless China and India are able to find common ground and resolve long-standing differences — and even if they did so, a BRICS currency wouldn’t necessarily be backed by gold.
“They do see a desire to cooperate among themselves to counter decades of hegemonic activity by the US and to a lesser extent Europe,” he continued. “But the idea of a central currency makes no sense. None of the countries really want to tie their currencies to Russia. The idea of a different currency backed by gold is a non-starter.”
M&A activity makes headlines
The massive deal between gold giants Newmont (TSX:NGT,NYSE:NEM) and Newcrest Mining (ASX:NCM,TSX:NCM) inched closer to completion through the third quarter. The deal, which will see Newmont acquire 100 percent of Newcrest, reached significant milestones as the companies received key approvals from Australia, Japan and Papua New Guinea.
Newmont shareholders met on October 11 to vote, with 96 percent of them voting in favor of the transaction. Newcrest shareholders are set to vote on October 13. Newmont has been trading lower since it announced its intention to acquire Newcrest on February 5, while Newcrest’s share price has reacted more favorably.
Though this may be the biggest gold deal of the year, 2023 continues to be hot and is on track to bring in the highest level of mergers and acquisitions for the mining sector in a decade.
Other notable M&A announcements in the sector during Q3 include the completion of a merger between GCM Mining and Aris Gold on September 26 to create Aris Mining (TSX:ARIS,NYSE:ARMN). The resultant company has operations in Colombia and produced 60,193 ounces of gold in its most recent quarter.
Aside from that, Canada’s Silvercorp Metals (TSX:SVM,NYSEAMERICAN:SVM) announced on August 6 that it has entered into a binding scheme implementation deed to acquire Australia’s OreCorp (ASX:ORR). The acquisition would give Silvercorp a US$630 million market cap and access to OreCorp’s multimillion-ounce Nyanzaga gold project in Northwest Tanzania. The project is expected to produce 240,000 ounces of gold per year once complete.
“A lot of (companies) are at the feasibility stage, or the construction stage or the finance stage, and their market cap is two or three or sometimes four times less than the equity it would take to build the mine,” he said. “What I’d like to see is several of these companies merge, so you have one company with a handful of these projects — maybe $150 million, $200 million in the bank, access to capital and also tack on a big board US listing. Then you’re more liquid, you’re more attractive.’
Biggest IPO of the year is golden
July 7 brought Indonesia’s biggest initial public offering (IPO) this year and one of the world’s best-performing IPOs so far in 2023: PT Amman Mineral Internasional (IDX:AMMN). The company raised the equivalent of over US$713 million in its IPO, and shares have since surged 250 percent in value, giving the firm a market cap of US$29 billion.
The company’s most significant asset, Amman Mineral Nusa Tenggara — which includes the Batu Hijau mine, the second largest gold mine in Indonesia — was purchased from Newmont in 2016. The copper-gold mine produced 172,000 ounces of the yellow metal during the first half of the year.
So, why has gold retreated?
Even though there have been strong gold sector developments over the past three months, larger economic trends have made investments like Treasuries more attractive and have dulled gold’s luster. The yellow metal’s relatively flat growth over the past few years has also prompted investors to look for more immediate gains elsewhere.
With the US economy and dollar staying strong and no relief from high interest rates until at least 2024, it’s not looking good for investors who hope gold will break through US$2,000 in the coming months.
However, the Fed has indicated that it’s tracking the economy closely and has acknowledged that a recession hasn’t been completely avoided. The central bank will meet again from October 31 to November 1 to determine whether another hike will be needed and to outline its steps for the beginning of next year.
Following a solid start to the year for gold, the third quarter brought setbacks for the metal, which is subject to both broad market forces and investor appetites. While retail and institutional investors may continue to shy away from gold for interest-bearing assets, central bank buying looks set to persist and may be a factor in price stabilization in Q4.
At the same time, Q4 has already brought a great deal of geopolitical instability. The invasion of Ukraine remains an issue for investors and, if it worsens, it could push the price of gold higher. Additionally, a burgeoning conflict in Israel has already pushed the price of the yellow metal up nearly 1 percent since hostilities began on October 7.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.