When it comes to critical minerals, many will first think of metals like lithium, nickel, or cobalt. In recent months, antimony has been added due to its enormous importance for the military sector. But gold? Most of us would not initially expect gold to be on the list of critical metals and minerals, yet the precious metal could soon end up exactly there.
Since gold, unlike most other critical metals, is not consumed by industry but primarily hoarded by investors as a stable store of value, it is not critical in terms of physical scarcity. Each year, the above-ground gold stock continues to grow, yet there might not be enough gold available precisely because fewer and fewer gold owners are willing to part with the gold they possess.
The reason for this pessimistic view is the changed significance of gold. When the US ended the convertibility of the US dollar into gold in August 1971 and the world moved away from the gold standard, gold gradually disappeared from investment portfolios. First, central banks began to incorporate interest-bearing assets into their reserves instead of gold.
Gold: from Niche to New Object of General Desire
For years, gold therefore led a niche existence. It was nevertheless held onto to hedge against inflation or because the times were marked by increased geopolitical tensions. But when it came to returns, bonds and the US dollar were usually much more highly valued by central banks and investors alike.
The Russian attack on Ukraine and the subsequent Western sanctions initiated a global rethinking in February 2022. This was significantly reinforced this year with Donald Trump’s return to the Oval Office. The result was a global re-evaluation of the relative safety of US assets. Furthermore, the question of the Federal Reserve Bank’s independence is viewed differently today than a year ago, and the deterioration of the US fiscal situation is increasingly coming into focus.
A few days after the US presidential election, gold reached a low of US$2,536.71 on November 14, 2024. Since then, it has gained 32.3%. On April 22, a new all-time high of US$3,500.05 per troy ounce was reached. Since then, this increase has been consolidating. The daily news flow primarily determines whether short-term price movements are trending upwards or downwards.
In the Short Term, the News Flow Remains Decisive for the Gold Price; in the Long Term, Central Banks and Large Investors.
However, if one takes a step back and disregards the news-driven, short-term ups and downs, it quickly becomes clear that the upward movement of the gold price will continue sooner or later, because, as the World Gold Council (WGC) reported in June, 95% of the 73 surveyed central banks expect a further increase in central bank gold holdings in the coming twelve months.
“This is a record high since the first survey in 2019 and represents a 17% increase compared to the 2024 results”, the WGC commented on the results of its survey. This makes it clear that the shift away from the US dollar and US assets is no longer a whim of the moment, but that Donald Trump broke a lot of china in the few months of his second presidency.
Who can one still believe and trust at this point? Other countries that might soon present similarly unreliable governments? No one can rule out this danger anymore. Therefore, gold is developing into one of the few viable alternatives to US Treasury bonds and the US dollar, not only for central banks but also for fund managers and private investors.
Gold Mining Stocks Increasingly in Focus
With gold, the shares of major gold producers are also becoming increasingly attractive. Two aspects are currently converging here. The high gold price has caused the margins of gold mines to explode. This has led to their shares rising faster than the gold price itself.
Newmont, the world’s largest gold producer, is a good example of this development, as since its last interim low on December 30, 2024, Newmont’s stock has risen by 63%, significantly faster than the gold price itself. Barrick Mining, which intends to focus more on copper in the future and has therefore removed gold from its company name, only gained 40.6%. Gold Fields gained 88%, and AngloGold Ashanti can even show a triple-digit return of 108% since December.
However, the significantly increased margins are currently not the only reason attracting investors to gold producers. Concerns about an impending recession in the US have the same effect. Should the US indeed enter a recession later this year, gold mines are a good hedge, as their profits will remain at attractive levels thanks to the high gold price, even if consumers in the US and elsewhere have long lost their desire for carefree consumption due to the deteriorating economic situation.
