Gold rallies amid safe-haven appeal

The precious metal's appeal has boosted several mining stocks in February, but AIM's Greatland Gold came under pressure today.

Gold traded at an eight-month high today as geopolitics and inflation worries more than offset pressure on the precious metal from rising interest rate expectations.

Today's increase of 1% to above $1,890 an ounce, the highest level since June, came as the US cast doubt over Russia's earlier claim that it has withdrawn some troops from Ukraine's border.

There was also support from the latest US Federal Reserve minutes, which failed to produce evidence that policymakers are considering a 0.5% rise in interest rates.

Gold's robust performance continues the dynamics seen so far in 2022 as the yellow metal weathers forecasts for US interest rates to rise as many five times starting from March.

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As a non-yield bearing asset, gold loses its appeal when interest rates rise although for the time being elevated inflation is keeping real rates at record lows.

US dollar strength poses another headwind, but relative to other mainstream assets gold's performance was robust in January after falling 1% month-on-month to $1,795 an ounce.

In addition, World Gold Council data revealed net inflows to exchange traded funds of 46 tonnes in January, the highest monthly increase in holdings since May and driven by the US.

Since then, the yellow metal's safe haven appeal has come to the fore as investors look to hedge geopolitics, inflation concerns and broader market uncertainties.

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The World Gold Council said last week: “We believe investors will continue to focus on both the speed of upcoming interest rate rises and the dark cloud prospects of persistent high inflation.

“Gold’s ability to move meaningfully in either direction will, in the short term, depend on whether investors are more concerned about inflation not cooling off or interest rates increasing more rapidly than expected.”

UBS Global Wealth Management expects the gold price to fall back to in line with its target of $1,650 an ounce by the end of 2022.

It said yesterday: “A break in the negative correlation between gold and US real rates never really endures, and this time is no different, in our view. Hence, we recommend clients to reduce tactical allocations and protect the downside of strategic holdings.”

February's strong performance has bolstered shares in a number of London-listed miners, led by FTSE 100-listed top-10 producer Polymetal International (LSE:POLY) after a rise of 14% in February.

Petropavlovsk (LSE:POG), which used to be known as Peter Hambro Mining, and Egpyt-focused Centamin (LSE:CEY) are both up by around 6% in the FTSE 250 index.

AIM-listed Greatland Gold (LSE:GGP) is one of the exceptions, with its shares under pressure today after joint venture partner Newcrest (ASX:NCM) published its annual results.

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Newcrest, which is exploring and developing Greatland's Havieron gold-copper discovery in north-west Australia, reported that exploration work had encountered some challenging ground conditions but that first ore continues to be expected in 2024.

Greatland responded in a separate statement by pointing out that the company has consistently announced excellent drill results which are not incorporated in today’s release by Newcrest.

It also remains in discussions regarding the potential exercise of Newcrest’s option to acquire an additional 5% interest in the Havieron joint venture from Greatland.

Greatland shares today fell 0.4p to 13.4p, which compares with 24p last February.