Huge potential in tried and trusted site – Financial Review

While fears of ratcheting global interest rates have taken the gloss off the previously hard-running gold price, Australian producers are still enjoying healthy margins – despite spot bullion declining about 14 per cent since hitting a record $US2070 an ounce in August last year.

The market narrative goes that if the US Federal Reserve tapers back its bond-buying program as expected, this will spur higher interest rates. This in turn will erode the value of gold, which is not income producing, relative to risk-free cash yields.

But with gold subject to myriad influences, the ‘higher rates, lower gold’ thesis is not that simple.

As the World Gold Council explains, the negative impact from higher rates is likely to be offset by the “unintended consequences” of expansionary monetary and fiscal policies. “These may include inflation, currency debasement, and higher exposure to [riskier] assets in portfolios,” the organisation stated in its Gold mid-year outlook 2021.

The listed Australian gold sector has retreated in sync with the global bullion decline.

But as Wiluna Mining’s executive chair Milan Jerkovic notes, the explorers and developers have been devalued less than the established producers who are immediately exposed to the softening gold price.

He adds that while gold may have been oversold, the sector will recover in the next 12 months as ‘growth’ investors look to gold stocks for “real value and cash flows”.

Such a scenario would pan out perfectly for Wiluna, which is taking a longer-term view to developing its eponymous project in Western Australia’s tried-and-trusted Northern Goldfields region.