As the price of gold rallied significantly this year, an analyst predicts the precious metal will grow even further as the U.S. dollar weakens on the global market.
John Zechner, chairman of J. Zechner Associates says central banks in China, India and Japan are diversifying assets away from U.S. reserve holdings towards the rich commodity, which will likely contribute to continued price growth.
He says countries have been turning away from the commodity because of global trade tensions and geopolitical risks from U.S. President Donald Trump’s tariffs war. “It has now surpassed the Euro as the second biggest holding, next to the U.S. dollar,” Zechner told BNN Bloomberg in a Thursday interview.
“Given what’s going on the U.S., I can only see that going further.” The price of gold floated around US$3,330 due to the de-escalation of the Israel and Iran conflict.
Meanwhile, the U.S. dollar plummeted to a three-year low as expectations from the Federal Reserve eased amidst speculation that Trump may nominate a new chief who is more likely to cut interest rates, according to Reuters. Lower interest rates tend to depress a currency. Investors have flocked to gold in recent months viewing the commodity as a safe haven, according to a commodity strategist with TD Securities.
“I think these central banks are massive buyers,” said Zechner. “That will continue. They have to diversify their currency holdings, probably out of fiat currencies in general.”Zechner does, however, say countries might consider adopting cryptocurrencies.“ I have yet to see a major central bank, or even a mid-level central bank, start to embrace Bitcoin or cryptocurrencies in general,” said Zechner. “In the meantime, they can buy gold. I think they will continue to do it.”
Torex Gold Resources (TXG TSX)
Zechner favours Torex Gold Resources, a Canadian intermediate gold producer engaged in mining, developing and exploring in Mexico. The company has been extracting the commodity at a 29,000-hectare property.
The company’s stock is hovering around $42, up 109.8 per cent from last year. He said the company has made strategic moves operating undergrounds mines El Limon and Media Luna extending their reserves and improving their financial position.
“We’ve held it for a while now,” said Zechner. “They started to do really well in the past year in the big Morales property in Mexico. They had the largest single mine there, and the El Limon mine. The problem was, it got a low valuation, because they’re running out of the existing open pit. It’s running down. They’re going to have to sort of roll it off. People were not paying much for future growth but on that same property to the south of it, they had a property called Media Luna. They’ve been able to bring the Media Luna online to replace this almost seamlessly in the past year, right on budget and right on time. It is almost unheard of. At the same time, you’ve gone underground at a El Limon as well as Media Luna. That’s going to extend the reserves a little bit further.”
Reyna Silver, an exploration and development company focused on exploring high-grade, district-scale silver deposits in Mexico and the United States recently announced acquisition by Torex Gold and Concurrent Financing.