New gold supply is very tight
According to Kitco - the gold supply is at risk as gold discoveries become increasingly rare and smaller.
According to a report from S&P Global analyst Paul Manalo, there were 350 mines discovered between 1990 and 2023, with reserves of 2.9 billion ounces of gold. However, there have been only 5 major gold discoveries since 2020.
Recent discoveries “have been scarce and smaller in scale,” Manalo said. “No discovery made in the last 10 years has made it into the top 30 largest gold discoveries, supporting our long-held view that a decade of focusing on older, known deposits has limited the opportunity to make large discoveries in early-stage prospects.”
The lack of quality discoveries in recent decades does not bode well for gold supply, Manalo warned.
Opportunities for gold mining units
After a surge that has seen gold prices rise as much as 28% by 2024, the precious metal has hit resistance at $2,700 an ounce. While gold still has room to rise, one portfolio manager said the market “doesn’t have to go much higher to be profitable for gold miners.”
In a recent interview with Kitco, Chris Mancini, deputy portfolio manager of The Gabelli Gold Fund (GOLDX), shared his bullish view on gold. However, he noted that even if gold prices stabilize around $2,650 an ounce, gold miners will still see solid returns.
“The economy has started to weaken and will continue to weaken, which means interest rates will continue to fall. We will see more and more experts talking about gold, which will support ETF demand and help keep gold prices high. Anyone who starts to pay attention to the mining sector will make good returns,” Mancini said, as investors continue to ignore the mining sector, despite the fact that these companies generate significant cash flows.
While FOMO (fear of missing out) sentiment in the mining sector is not yet evident, Mancini said he expects it to change as the new year approaches.
He predicts that high-end manufacturers will show significant cash flow growth from Q3, with the expected rollout before early 2025.
“I think it’s a pretty good time to invest in mining companies. First, mining companies will start paying down debt, and at current prices, they’ll probably hit their target net debt level by the end of the year. Next year, they’ll be in a good position to start paying dividends, increase their dividends, or pay special dividends. When that happens, the market will start to wake up. But I don’t think investors should wait.”
Looking ahead, Mancini said, gold producers have the potential to grow 20% in the current environment.
