ASX gold miners have delivered a mixed performance this year.
Both the Newcrest share price and Regis share price are down 14% since 2 January.
But a number of other S&P/ASX 200 Index (ASX: XJO) gold shares have delivered investors some outsized gains in this highly turbulent year.
The Evolution Mining Ltd (ASX: EVN) share price, for example, is up 33% in 2020.
Saracen Mineral Holdings Limited (ASX: SAR) shareholders have enjoyed an even more profitable year. Saracen’s share price is up 42% year-to-date.
By comparison the ASX 200 is down just under 1% in that same time.
What’s next for ASX gold shares?
The widely divergent share price gains (and losses) among the ASX gold miners mentioned above tell you that their performance in 2021 is going to depend on more than just the price of the yellow metal they dig from the ground.
The quality of their assets (how much gold is on their turf, and how much does it cost to bring it to market), their debt levels, and the management teams and geologists they have in the field are just some of the other core factors you need to consider before investing in these companies.
With that said, the gold price does have a tremendous influence on gold mining shares. That’s why you’ll hear that gold miners are leveraged to the price of the yellow metal.
You see, a gold miner’s costs are fixed, regardless of the price of gold. Imagine it costs a miner $1,000 per ounce to bring their gold to market. At a gold price of $1,500 per ounce, they’re turning a profit of $500 per ounce.
Now imagine gold shoots higher, to $2,000 per ounce. With its costs remaining constant, the miner is now turning a profit of $1,000 per ounce. In other words, a 33% increase in the gold price sees this fictional miner’s profits increase by 100%.
As you likely know, gold’s had a pretty great run this year. Back on 2 January it was worth $1,517 per ounce. Gold hit record highs (in US dollar terms) of US$2,063 per ounce on 6 August. It’s slipped some since then, currently trading for US$1,886 per ounce. Still, that’s up 24% over 12 months.
Will gold set new record highs again in 2021?
Forecasting the price of gold is not unlike forecasting the weather. The further into the future you try to predict the price, the more variables there are that could undermine your forecast.
With that caveat covered, Harry Tchilinguirian, head of commodity research at BNP Paribas, predicts gold will again top US$2,000 per ounce in 2021.
In a telephone interview with Kitco News, he pointed to the record global monetary policies and fiscal stimulus measures in place, saying these will keep bond yields low or even negative in the near term, helping support higher gold prices:
Negative real yields will be very important for at least in the next two quarters. But after that, the situation changes a bit because people’s view on the economy changes.
Tchilinguirian forecasts gold will peak in the second quarter of 2021 near US$2,010 per ounce. Throughout next year he predicts an average price in the range of US$1,945 per ounce.
While the 7% gold price rise he forecasts is significantly less than what we saw in 2020, if he’s right, it should still offer some solid tailwinds for leading ASX gold shares in 2021.