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Gold Price Drivers: 2019 vs. 2020


JOE FOSTER: We saw a very strong performance from gold last year, and it came about through a shift in Fed [U.S. Federal Reserve] policies, really. In July of 2019, the Fed started cutting rates, cutting rates in an attempt to avert our next recession. With that, investors became worried about an economic downturn.


And more importantly, it resulted in a fall in real interest rates. Gold has a very strong correlation with falling interest rates, and the Fed rate cuts caused real interest rates to fall to negative levels, which was a major catalyst for gold. Looking further into 2020, we are in a very late cycle economy.

These cycles don't last forever. And again, monetary policies are very accommodative everywhere in the world. The Europeans, Americans, the Chinese, they are all trying to avert a global recession. If that happens, of course that brings a lot of risk to the economy that could drive gold much higher.


Gold Industry M&A Activity


FOSTER: 2019, there were really two types of M&A [mergers and acquisitions], one at the beginning of the year. The other, at the end of the year. In the beginning of the year, we saw the creation of the supermajors, where Barrick merged with Randgold, Newmont merged with Goldcorp to create what we now are calling the two supermajors. Later in the year, in the fourth quarter, we saw the smaller companies, the mid-tiers, the single asset companies, quite a few mergers and acquisitions amongst that group.


Looking forward into 2020, we don't expect the creation of any more supermajors.


Where we see increasing M&A activity is amongst the mid-tiers, and especially amongst the single asset companies. Gold is one of the most fragmented industries amongst the metals producers, and investors … , there needs to be consolidation. Combining companies to create larger, more substantial companies, more diversified companies, in order to attract a broader shareholder base.


Gold Mining Industry Outlook


FOSTER: The things that we're expecting to see out of these companies is a return to shareholders, a return of capital. These companies are generating tremendous cash flow at current gold prices. That cash flow goes into new capital projects, it goes into paying back debt for some companies, but a large chunk of it we expect to see returned to shareholders in the form of dividends and or stock buybacks. The other thing that we're looking for as we move through 2020, is to keep costs down.


The industry is generating gold for roughly around $900 an ounce right now, for their all-in sustaining costs. We expect them to hold the line on costs and what will enable them to do that is the adoption of new technologies. We're seeing electrified vehicles, driverless vehicles, big data used to keep maintenance costs down. Procurement costs have been falling.


And then finally, ESG has become a huge investment theme all around the world, everywhere. The gold industry has done an excellent job of ESG (environmental, social and governance) issues, and especially on the environmental and social front, they do a fantastic job.


The problem is the general market, the general investor, doesn't know about it. They need to do a better job of making their case, getting the story out. So, we expect to see increasing transparency amongst the companies, a better job of reporting their environmental and social efforts. And we think that that will be looked favorably in the market, and I think it will resonate well with investors.