Monsters of Rock: Central banks lust for precious gold and FMG drags the mining sector

World Gold Council says 4 in 5 central banks expect to accumulate more gold in the coming year
It The WGC survey follows two record years for central bank gold buying
Meanwhile, Fortescue’s 5% tank on block trade prevents ressie gains

Who loves gold?

None more than global central banks right now, where the bullish upside continues, despite gold prices topping US$2338/oz.

Prices like those would normally (and we remain in very much abnormal territory given bullion never attracted more than US$2100/oz before this year) signal a flag on of risk.

The cure for high prices is, typically, high prices, which usually prompt a buyer’s strike.

But after a record couple of years of gold demand from central banks, driven by eastern buyers like China and Turkey, fiscal decision makers across the globe still see their gold holdings going up.

The 2024 Central Banks Gold Reserves Survey released this afternoon by the World Gold Council shows that four in five respondents expect reserve managers to increase their gold holdings in the next 12 months.

Of the 70 central banks polled, nearly 30% are committing to lift their own gold reserves in the coming year.

57% say gold will account for a higher proportion of global reserves within five years, up from just 38% a year back.

“Extraordinary market pressure, unprecedented economic uncertainty and political upheavals around the world have kept gold front of mind for central banks. Many of these institutions have become more aware of the asset’s value as a way to manage risks and diversify their portfolios,” WGC global head of central banks and head of Asia-Pacific Shaokai Fan said.

“What has been remarkable is that despite record demand from the official sector in the last two years coupled with climbing gold prices, many reserve managers still maintain their enthusiasm for gold.

“While influences like price may temporarily slow down purchases in the near term, the broader trend remains in place, as managers recognise gold’s role as a strategic asset in the face of ongoing uncertainty.”

Central banks added a record 1082t in 2022 and near record 1037t in 2023, with almost 90% of respondents quoting its role as an inflation hedge as a highly or somewhat relevant factor in their decision to hold gold in their national reserve.

Those responses reveal inflation concerns continue to loom large for central bankers tasked with returning consumer prices to a stable growth rate after a cyclonic inflation rise felt in most corners of the globe post-Covid.

96% of emerging and developing market central banks cited inflation concerns as a relevant factor in their management decisions, up from 67% for advanced economy banks and 86% for the total cohort of respondents.

Gold prices were dulled earlier this month after China paused an 18 month long gold buying streak in May.

Pic: WGC

Et tu, Fortescue?

Andrew Forrest’s Pilbara plaything Fortescue (ASX:FMG) has long been in the bad books with instos frustrated with their inability to make head and toes of the numbers behind its green energy business.

While growing volumes and strong iron ore prices for its Pilbara ores have kept FMG up, lifting the mining giant to all time highs earlier this year and underpinning strong dividends in the half-year, Twiggy’s love of hydrogen, a slew of executive departures and the mystique around its green division have eroded the confidence of many analysts and holders from the big end of town.

Though it’s unclear why it’s occurred, amid that backdrop JP Morgan has, according to the AFR, offered a 50.3m share block worth $1.1b was sold at a 6% discount to its Monday close.

Block trades such as these can erode confidence from the retail end of the market, who view it as the smart money leaving. The discount itself hits the value of the stock as well.

FMG was down around 5.5% at 3pm AEST, with almost 69 million shares traded. Typically a high volume day for the iron ore miner would be 10m and beyond, and volumes have not been this high since early 2019.

It came after weak Chinese real estate data, showing a 10.1% YTD drop in investment year on year over the first five months of 2024, hurt the steel complex. Singapore prices tumbled below US$105/t yesterday but recovered today 2.9% to US$108.40/t.

FMG shares are around 26% down this year, pulling its market cap down to around $67b.

At the same time lithium stocks defied gravity, with Pilbara Minerals (ASX:PLS) up 3.2% and Liontown Resources (ASX:LTR) 3% higher, and some smaller players like Develop Global (ASX:DVP) and Delta Lithium (ASX:DLI) recording outsized gains on no news.

Lithium prices were effectively unchanged overnight, with chemicals prices even at US$13,500/t according to Fastmarkets and its daily spodumene assessment off US$18 to US$1125/t.

Fastmarkets logged four trades yesterday, assessing SC6 prices at between US$1080-1135/t on Monday.