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News Article

Mexico Could Benefit From Gold Market Opportunities

By Paloma Duran | Mon, 05/02/2022 - 15:35

The World Gold Council reported that gold is expected to remain strong in 2022 due to its increasing use as a destination for safe investment in the current uncertain geopolitical and economic environment. Mexico, being one of the main gold producers in the world, can benefit from this bullish outlook. However, an expected decline in domestic production could hamper its market opportunities.

The World Gold Council explained that geopolitical factors such as the Russo-Ukrainian war and rising inflation have attracted further investor interest in gold, causing the precious metal to reach a price of US$2,070/oz in March 2022, which is close to its all-time high. Furthermore, the council explained that during 1Q22, gold demand rose 34 percent year-on-year to 1,234 tonnes, which is the highest since 4Q18. Meanwhile, total gold supply increased 4 percent compared to 2021, mainly driven by a high mine production of 856 tonnes.

“1Q22 has been a turbulent [quarter], marked by geopolitical crises, supply chain difficulties and surging inflation. These global events and market conditions have solidified gold’s status as a safe haven holding, not just for investors but also for retail consumers thanks to its unique position as a dualnatured asset class,” said Louise Street, Senior Analyst EMEA, World Gold Council.

In an interview with MBN, Ralph Shearing, CEO, Altaley Mining, said “right now mining companies are making a lot of money; base metal and gold miners particularly benefit from growing inflation and crises like the Ukraine issue. I have been in this industry for a long time and have seen a lot of market cycles but this one feels different. We are at the beginning of a major super-cycle for commodities and specialty metals.”

Bjorn Goosen, Senior Analyst, S&P Global Market Intelligence, said the gold environment is expected to remain strong throughout the coming quarters. In the short to medium term, the price is forecast to remain around US$1,900 per oz. However, by the end of the year, the price is expected to drop to US$1,825 per oz due to rising interest rates, reported BNamericas.

Experts argue that while in 2021 Mexico ranked as the world's seventh-largest gold producer and therefire could benefit greatly from these gold market dynamics, a drop in production could hamper its gains. In 2022, Mexico is expected to produce 3.03 Moz of gold, showing a decrease of 7.5 percent compared to the 2021 gold production of 3.27 Moz, according to estimates made in conjunction with the 19 main gold producers in the country, reported BNamericas.

The decrease in production is due to lower grades and mine closures at two of Mexico's largest gold producers, Newmont and Fresnillo. However, experts believe that Mexico could compensate for the production drop since 6 of the 19 companies considered in the estimate are expected to increase production. However, this perspective can only be confirmed at the end of 2022.

Although the outlook remains somewhat uncertain, the experts all agree that Mexico will continue to be one of the main producers and therefore reap the benefits. Dean McPherson, Head of Business Development for Global Mining, Toronto Stock Exchange, TSX Venture Exchange and TMX Group, told MBN that “market dynamics such as ESG trends are placing Mexico at the forefront, and that is why it continues to be a key jurisdiction for us. The country has its challenges, which are well known by our investors, but there is a degree of comfort in their approach to it. In other words, Mexico stands to benefit significantly from what is happening in the mining markets.”

The data used in this article was sourced from:  
The World Gold Council, MBN, BNamericas
Photo by:   Scottsdale Mint
Paloma Duran Paloma Duran Journalist and Industry Analyst