Increase in gold exploration dollars spent not yet reflected in new discoveries

Although gold exploration budgets have fallen from a ten-year peak in 2012, spending on finding new gold ounces remains at historically high levels, a report from S&P shows. It points out that $54.3-billion has been allocated to gold exploration over the past decade, almost 60% higher than the $32.2-billion spent over the preceding 18-year period. However, the increase in dollars spent has not yet resulted in more new discoveries or discovered ounces compared with the previous period. Only 215.5-million ounces of gold has been defined in 41 discoveries over the most recent ten years, compared with 1.73-billion ounces in 222 discoveries in the preceding 18 years, the report notes.“Even after adjusting for more recently identified deposits that might eventually surpass our threshold for a major discovery, and for major discoveries with potential to expand, we forecast that the gold in major discoveries might only increase to about 363-million ounces over the next decade,” it states.

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The discoveries data set prepared by S&P Global Market Intelligence includes all deposits containing over one-million ounces of gold in reserves and past production, or two-million ounces of gold in reserves, resources and past production. It points out that, while the amount of gold discovered yearly varies widely from year to year, it roughly follows the trend of yearly spending on gold exploration. Of the 263 major discoveries in the past 28 years, over half were made in the 1990s and contain most of the discovered gold. The report highlights that the industry downturn that began in 1998, and lasted into the early 2000s, had a meaningful impact on budgets and discoveries. By 2000, budgets were almost one-third of their 1997 peak, and discovery rates were declining, with only 16 new discoveries recorded from 2000 to 2002, containing 108.3-million ounces, well below the average from any period during the 1990s.

There has been a slow decline since 2006, with both the number of new discoveries and the amount of contained gold trending downwards. This trend escalated in 2010, with a precipitous drop in the amount of discovered gold, to just 18.6-million ounces from 61.5-million in 2009. Despite historically high gold budgets since 2010, discovery rates have failed to break 40-million ounces in any given year, S&P states.“Although we believe the sharp decline is indeed reflective of the lack of new significant deposits being found, a portion of the shortfall is a natural situation in which the additional exploration required to expand the known endowment of recently found deposits beyond our major discovery threshold has not yet been conducted.“To account for this, we estimated gold in discoveries expected to meet our criteria in the future. While this has resulted in the amount of discovered gold likely tripling in some years, the total projected gold in discoveries from the past decade remains far below the amounts discovered prior to the 2008/9 financial crisis.”A major factor contributing to the lack of major discoveries is a shift in focus within the exploration sector.“While there is clearly a decline in discovered deposits and ounces, this will not impact the short-term project pipeline,” the report notes.

As dollar strengthens, the yellow metal weakens

Spot gold was up 0.1 percent at $1,318.52 past week, not far from a low of $1,315.06 hit in the previous session, it’s weakest since March 21.

The metal was on track to finish the week down more than 1 percent for its second consecutive weekly decline and the biggest weekly drop in four.

The strength of the U.S. dollar - combined with the weakness of the euro zone currency after (ECB chief) Mario Draghi’s speech - is pushing down the yellow metal.

The dollar hit a 3-1/2-month high against a basket of currencies on higher U.S. yields while the euro was hampered by a dovish tone from the European Central Bank. On Wednesday the benchmark 10-year Treasury yield reached its highest since January 2014 at 3.035 percent. A rise in U.S. bond yields pressures gold by reducing the attractiveness of non-yielding bullion, which is priced in dollars.

Thursday’s trading started on a weak footing, but most of the metals ended the day in positive territory, which suggested dip buying and support are features of the market. Precious metals prices were little changed on Thursday morning, with gold and silver prices off by 0.1% – with the former at $1,316.54 per oz. Meanwhile, the platinum group metals were both up by 0.1%.

Gold continued losing ground through the early NA session and is currently placed at fresh 6-week lows, around the $1312-11 region.

After Friday's corrective bounce, resurgent US Dollar demand was seen as one of the key factors weighing heavily on dollar-denominated commodities - like gold at the start of a new trading week.  Gold prices retraced upward in what looked like a correction after higher and sent the yellow metal to a one-month low.

Easing geopolitical concerns and the strengthening dollar index are the factors which are creating the sell-off. This rise in the dollar seems to be weighing on gold and is likely to be a headwind for metals’ prices generally.

Recent increases in geopolitical tensions and rising commodity prices, especially oil, seem to have spurred inflationary concerns that have led to stronger bond yields and in turn that has lifted the US dollar, with the dollar index at 90.97. This has broken above the previous peak at 90.94 from March 01.

At their summit on Friday, North Korean leader Kim Jong Un  and South Korean President Moon Jae-in declared they would take steps to formally end the 1950-53 Korean War, which ended only with a truce, and work towards the "denuclearisation" of the Korean peninsula.           

North Korean leader Kim Jong Un and South Korean President Moon Jae-in on Friday declared they would take steps to formally end the 1950-53 Korean War, which ended only with a truce, and work towards the “denuclearisation” of the Korean peninsula.

The signs of detente in the North Korean conflict are ... contributing to the lack of solid demand for gold as a safe haven at present

Further as tensions o the Korean peninsula eased, the European shares rose after a positive session among Asian stocks overnight. The dollar index rose 0.2 percent on Monday, 30th April, holding just below its strongest since mid-January.

Gold fell at the start of this week, pulling back towards last week's more than one-month low as easing tensions on the Korean peninsula boosted appetite for assets seen as higher risk, such as stocks, and lifted the dollar.
   
The metal slid 1 percent last week on the back of a stronger dollar and a rise in Treasury yields to above 3 percent, which weighed on interest in non-interest bearing assets. On Thursday, it hit its lowest since March 21 at $1,315.06 an ounce.

That has left it on track to end April down 0.5 percent, erasing all the previous month's gains.
Spot gold was down 0.4 percent at $1,316.15 an ounce during trading hours.
   
Meanwhile, the Fed’s favoured PCE inflation gauge is expected to put core price growth at a 13-month high of 1.9 percent.

The latter would put the Fed within a hair of at least ostensibly meeting its dual objectives. Policymakers aim for inflation of 2 percent to be sustained in the medium term – abating the significance of a single month’s reading – but another sign of steady progress may reinforce the case for tightening.

Gold may return to suspicion, if this materializes as the prospect of higher rates sustains the US Dollar, undercutting demand for non-interest-bearing and anti-fiat assets.