If you're considering an investment in the gold sector, then there's one thing you will want to keep a close eye on. That is, of course, the gold price.
When the gold price is strong, miners like Evolution Mining Ltd (ASX: EVN), Newcrest Mining Ltd (ASX: NCM), and Northern Star Resources Ltd (ASX: NST) benefit greatly and often report big profits.
This can also lead to some gold miners rewarding their shareholders with equally big dividends.
The good news for investors is that the gold price is currently trading at approximately US$1,932 an ounce, which is relatively strong compared to the average over the last decade. This bodes well for gold miners when they report their results for FY 2023 in August.
But will this trend continue? Let's find out!
Where is the gold price heading?
According to a note out of Goldman Sachs, its analysts are positive on the outlook for the gold price.
In fact, the broker believes that the precious metal will trade higher than the market thinks in the near term.
This is due partly to "fear" and its status as a safe haven asset. The broker explains:
The team see 'fear' as the key medium to short-term driver for gold. […] As uncertainty rises, preference shifts towards more gold in the portfolio, driving prices higher. Generally, our team have found in their framework that fear is a far more important driver of gold investment demand than the opportunity cost of holding gold, as measured by short-term US rates. The catalyst for the current rise in 'fear' was not only banking and funding stress, to levels last seen in March 2020, but also a sharp rise in the market-implied probability of a US recession in the next year earlier this year.
Also supporting the precious metal will be the wealth effect according to Goldman. It adds:
On 'wealth', the team see the historical globalization and industrialization (especially in China) as having led to a significant boom in income and savings in emerging markets during the 2000s, which created new consumers, boosted household wealth and drove consumption demand for gold rapidly higher. Since 2000, China and India's combined share in the global jewelry market has increased from 25% to over 60%, though may still remain below peak per capita demand.
Goldman Sachs expects this to lead to an average gold price of the following in the coming years:
- 2023 – US$1,994 an ounce
- 2024 – US$2,133 an ounce
- 2025 – US$2,079 an ounce
- 2026 – US$2,025 an ounce
All in all, it looks like the good times could be here to stay for ASX gold shares. And if you're wondering which shares to buy, Goldman named three here yesterday.
