(Kitco News) – Gold’s continued consolidation near $3,300 per ounce shows the market is still waiting for clarity on interest rates and trade, and last week’s sudden announcement of tariffs on U.S. copper imports is a reminder that investors can’t be certain the same won’t happen for gold, according to Joe Cavatoni, Chief Market Strategist for North America at the World Gold Council.
Cavatoni said that while he didn’t see Trump’s announcement of 50% tariffs on copper imports coming, he wasn’t surprised, either.
“With respect to tariffs, and respect to critical minerals or strategic minerals or any metal that's going to be vital to the future of the US when it comes to defense, energy, etcetera, I think anything is on the table,” he said. “This administration has made it very clear that the dependency on foreign nations to source critical minerals or other assets is vital for them to address, so I think that this action speaks volumes.”
Turning his attention to gold, Cavatoni said the WGC said the yellow metal is still being well-treated from a tariff perspective. “But look, everything is possible, and I think that the deadline being moved out to the August date is just that, just moved the date,” he said. “I think he's very serious about dealing with how we source and where we source our minerals from.”
Asked whether he expects a change in the tariff policy for gold, Cavatoni said that’s not what the administration appears to be indicating, at least for now.
“Everything is possible, but the signaling that we're getting is that right now gold is being deemed predominantly as a monetary metal as opposed to a critical mineral,” he said. “Defense applications, telecommunication applications, those aren't areas where gold mainly plays a role in the economy. It plays more of a role in savings, it may play a role in terms of growth, in terms of portfolio holdings, central bank reserves, et cetera. So it's strategic in nature, [but] not on the critical minerals list as deemed by the administration – or previous administrations as well.”
However, Cavatoni said there are still potential issues with the physical flows between countries, which could prompt the Trump administration to react with tariffs.
“When metals move across borders, it can cause logistical challenges, so we're keeping a close eye on what and how these tariffs are developing,” he said. “We had an earlier move in the gold price, which was very momentum-driven, that related to gold being brought to the US to support futures contracts that had a physical delivery element to them before there was clarity on exactly how, it in its raw form, or in finished form, in wholesale levels, [it] would be deemed from a tariff perspective.”
“That's all clear for us now,” he added. “But look, nothing's final until it's final, so it could change.”
Turning to the price action, Cavatoni said that gold’s sideways churn near the $3,300 level is an indication that market participants are lacking clarity on several of the yellow metal’s major drivers.
“I think the market's trying to assess this information that comes fast and furious,” he said. “It's not easy to ascertain exactly what tariffs, or trade negotiations – or a lack of trade negotiations – could mean for anything.”
“What moves gold on the tactical side is momentum and opportunity cost,” Cavatoni explained. “If we see the Fed moving rates later in the year, that opportunity cost is going to be good for gold in the short term. But on the tactical side, people are moving quickly to try and assess whether or not momentum is going to move the gold price.”
He said the World Gold Council looks at the gold market less tactically and more strategically.
“We need to see some real fundamental changes for us to break out of this – range-bound – where we are right now,” he said. “We're up nearly 26% year-to-date, and that's very aggressive versus annual expected levels of return closer to 8%. Yes, we've run up, there's been reasons for that, but right now I think we're going to hold out until we can get some bigger, stronger signals as to what's really playing out from the economy, how the Fed's going to behave, what's going to happen with the dollar and dollar-based assets going forward.”
“That's what's going to move us more strategically beyond these levels where we're holding now.”
As for the supply picture, Cavatoni said the most recent data continue to jibe with the WGC’s own estimates.
“At this stage, the production levels that we're seeing and our expectation are in line with what we've seen for the last few years, still growing at that 1% to 2.5% rate on an annual basis,” he said. “The mining companies, while consolidating in the large-scale end of the market, are still making good opportunities to take advantage of the higher prices and still performing above the all-in sustainable costs.”
“Right now, what we're thinking about is whether or not the smaller-scale mining that's done in the artisanal way is going to be continuing to grow,” he added. “Could that be something that we need to be careful about? We're looking at an initiative now to try and clean up that end of the market. That's about 20% of the supply that comes online.”
“We think large-scale mining looks good, growth at about 2%,” he said. “It's that small-scale mining space that we're keeping a close watch on.”
Cavatoni was also asked about the high level of gold demand from central banks.
“They are about 20% to 25% of the annual consumption of gold in the last three, going on to four years now,” he said. “It's been a 15-year trend that central banks on a global scale have been net buyers.” He cited the recent WGC survey of 73 central banks, which showed 95% saying gold is going to play a key role, with 50% intending to add more gold to their reserves over the next 12 months.
“What it's telling us is that they're looking at their reserves, they need certainty around how assets will perform, and we expect them to be at the table,” he said. “Our Gold Demand Trends report, which we'll be releasing in a few weeks, will give you the second quarter total [for central bank gold purchases], and you'll probably see that to be another strong quarter for central bank demand.”
