Many in the market are betting that the gold sector will be a big winner under US President Donald Trump’s era of global tariffs, but some are asking just how high the gold price can go.
The United States is one of the biggest buyers of Australian gold, and while a tariff would drive the price higher, Mr Trump has made gold bullion exempt from tariffs.
Even so, with tariffs expected to create global uncertainty, some expect the commodity to become even more of a safe haven than it already is.
Gold has been trading at record highs and is currently at about $US3167.84 an ounce, but there is some caution that the commodity price has its limits.
If it becomes too expensive, one risk is that people stop buying gold because they can no longer afford it.
The idea of gold going even higher is an argument for why there could be more mergers and acquisitions in the sector after the recent Northern Star buyout of De Grey Mining, the Ramelius Resources and Spartan Resources tie-up, and Gold Fields’ bid for joint venture partner Gold Road.
Market sources say that mergers and acquisitions are becoming challenged as the market is more cautious and debt becomes harder to come by, but that does not mean acquisitions and mergers using scrip do not happen.
If the gold price rallies further, as many predict, it could also spell even greater trouble for gold miners already out of the money on their hedge book.
This includes groups like Bellevue Gold, already out of the money on its gold price hedge book in the hundreds of millions of dollars, say sources; and the Queensland mine Ravenswood Gold, which is currently up for sale through Azure Capital and UBS.
Bellevue was understood to have hedged gold at $2600 to $2800 per ounce and it’s currently around $4800.
Bellevue Gold is suspended from trading as the market awaits news on whether Macquarie Group, which provides it with its hedge book arrangements, will pressure the company to raise more equity as a production guidance downgrade looms.
Another possibility is that Macquarie extends the profile of the hedge arrangements.
Macquarie was also one of Ravenswood Gold’s lenders.
In a volatile market, the share prices of big gold miners Newmont, Northern Star and Regis Resources on Thursday all gained about 2 per cent.
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