Assessing Gold Prices Amid Uncertainty: A World Gold Council Perspective

Joe Cavatoni, the North America Chief Market Strategist at the World Gold Council (WGC), stated that gold's recent consolidation around $3,300 per ounce reflects a market waiting for clear signals regarding interest rate policies and developments in the global trade landscape.

Cavatoni cautioned that the recent U.S. announcement of tariffs on copper imports serves as a reminder that gold could face similar tariff adjustments. He emphasized that nothing is set in stone in this regard.

Potential Tariffs on Gold: A Possible Scenario

While the imposition of a 50% tariff on copper imports was surprising, it wasn't entirely unexpected. Cavatoni explained that anything is possible when it comes to critical or strategic minerals considered essential for the future of U.S. defense and energy. He asserted that the current administration has made it clear that addressing reliance on foreign minerals is crucial, making this move significant.

Regarding gold, the WGC believes its current positioning is favorable from a tariff perspective. However, Cavatoni emphasized that anything is possible, and the postponement of the tariff deadline to August is only a temporary delay. He added that the government is very serious about its stance on where minerals come from and how they are sourced.

Gold as a Monetary Metal: A Closer Look

When asked if he anticipates any changes in gold tariff policy, Cavatoni noted that there are currently no signs of the government taking action. He explained that gold is primarily viewed as a monetary metal rather than a critical mineral, as it doesn't play a major role in economic sectors like defense applications or telecommunications. Instead, gold is mainly used for savings, playing a role in investment portfolios and central bank reserves. Therefore, both current and past administrations have not included gold on the critical minerals list.

Physical Gold Flow Challenges and Implications

Nevertheless, Cavatoni highlighted that physical gold flows between countries could create logistical challenges, potentially prompting the government to take tariff measures to address them. He stated that the WGC is closely monitoring any potential tariff developments. The specifics of gold tariff imposition remain uncertain, such as whether they would encompass raw materials or finished products, and whether they would be calculated based on wholesale or import prices. He concluded that nothing is set in stone, and the situation remains subject to change.

Analyzing Gold Price Dynamics

Regarding price movement, Cavatoni believes that gold's horizontal consolidation near $3,300 indicates that market participants lack a clear understanding of the main drivers impacting gold. He explained that the market is struggling to assess the constant flow of information, and determining the potential impact of tariffs and trade negotiations is complex.

Cavatoni noted that market momentum and opportunity costs are the primary drivers of gold price fluctuations in the short term. He said that if the Federal Reserve adjusts interest rates later this year, the opportunity cost factor will be beneficial for gold in the short run. However, investors are focusing on determining whether momentum will drive gold prices to move.

WGC's Strategic Focus on Gold

Cavatoni explained that the WGC takes a strategic perspective of the gold market, focusing on fundamental changes to drive gold beyond its current range. He mentioned that gold prices have increased by approximately 26% this year, a significant gain compared to the average expected annual return of 8%. He emphasized that there are reasons for the increase in gold prices, but he believes that the market will continue to wait until stronger and clearer signals emerge regarding the actual direction of the economy, how the Federal Reserve will act, and how the dollar and dollar-denominated assets will perform in the future. He said that these factors are necessary to drive gold beyond its current range and achieve strategic gains.

An Overview of Global Gold Supply

Regarding supply, Cavatoni said that the latest data aligns with the WGC's expectations. He mentioned that production levels are in line with forecasts, maintaining an annual growth rate of between 1% and 2.5%. He added that major mining companies are performing above full-cost sustainability levels due to high gold prices.

Cavatoni noted that the WGC is monitoring the growth of artisanal and small-scale mining, recognizing potential issues that require vigilance. He explained that the WGC is taking steps to regulate this segment of the market, which accounts for approximately 20% of the total gold supply.

The Role of Central Banks in the Gold Market

Cavatoni emphasized the high demand for gold from central banks. He noted that central bank purchases have accounted for approximately 20% to 25% of total annual global gold consumption over the past three to four years. Central banks have consistently been net buyers of gold for 15 years. He cited a WGC survey of 73 central banks, where 95% stated that gold would play a key role, and 50% planned to increase their gold holdings in the next 12 months.

He explained that central banks seek to ensure the stability of asset performance when assessing their reserves and that they will continue to be active in the gold market. He concluded by announcing the release of the Gold Demand Trends report in a few weeks, which will include total central bank gold purchases for the second quarter. Cavatoni anticipated that this quarter would be another strong one for central bank gold demand.