Even the major producers of the precious metal are looking to diversify.
While inflation has peaked and the shadow of a recession looms, gold is not attracting investors as much as expected. While these factors generally push investors to turn to this still perceived “safe haven” value, gold miners’ shares are currently in free fall, reports the Financial Post.
Gold has now lost nearly 20% since it reached US$2,087 an ounce in March. VanEck Gold Miners ETF and Van Eck Junior Gold Miners ETFs, two exchange-traded funds indexed to the largest gold producers and explorers, lost 42% and 40% respectively.
Analysts explain gold’s unusual underperformance by central banks’ response to inflation.
“If we take a step back, higher nominal rates coupled with potentially subdued inflation over the next few months will likely lead to a decline in the price of gold,” Wrote Fahad Tariq, an equity analyst at Credit Suisse, in a note to investors on Sept. 13, referring to the U.S. Federal Reserve.
Thus, gold would only serve as a safe haven if the global economy entered a prolonged recession or if central banks failed to control inflation, two scenarios to which experts give little credit.
A bearish mood therefore seems to have infected the sector, and even the largest gold producers are looking to diversify.
Agnico Eagle Mines, Canada’s largest gold producer, recently announced that it will diversify its portfolio by investing $580 million to acquire a 50% interest in the San Nicolás copper-zinc project in Mexico.
Although the company’s chief executive calls the investment “a unique opportunity” and company spokeswoman Natalie Frackleton says it is only a one-time operation, some experts are questioning.
With demand for copper and zinc set to grow due to their use in energy transition technologies, the deal could be a harbinger of how gold miners are looking to grow in the future.
Not to mention that copper is “geologically bound to gold,” reports the CEO of Barrick Gold Corp. of Toronto, Mark Bristow. “If you want to become a world leader in gold eventually, you’re going to end up producing [copper],” he said.
So if gold prices continue to fall, one would expect other mining companies to look to incorporate copper, zinc and other metals into their portfolios, Financial Post concludes.