Gold Road Resources (ASX: GOR) sold off heavily today, on the back of growing fears from COVID-19. A rising number of infections in Europe and Iran has prompted markets to re-evaluate concerns about a global pandemic, despite cases of COVID-19 decreasing in China. The result also reflected the pullback of Gold which saw a 3.6% decrease at the end of the session yesterday.
Gold Road Resources is an Australian gold mining company that extracts gold from Yamarna Greenstone Belt located in Western Australia. The company has recently commercialized its main Gruyere gold mine, and the company is now trading at 17.1x FY20 earnings. Gold road has minimal debt due to it’s past as an exploration stage minerals company. However, since the company only deals with the supply of Gold, Gold Road price is highly correlated with the demand and supply of the commodity.
Drilling results from across the Yamarna Greenstone Belt during the Sept18 quarter add impetus to the Gold Road’ strategy of discovering stand-alone economic deposits or groups of deposits (Credit: Gold Road)
There are three main sources of demand for gold: investment demand, jewelry demand, and industrial demand. All three factors have a large impact on the gold price, although their impacts are felt by markets in very different ways.
One investment-related source of gold demand is central banks, like the RBA in Australia. These central banks are attracted to the safety of gold and use it to accomplish objectives like currency stability. Gold reserves are often held alongside US dollar holdings since the US dollar is regarded as the global reserve currency.
Moreover, gold has been used in jewelry for many centuries and continues to be used in jewelry until this day. The only aspect of the gold price outlook which is mixed is jewelry demand. With the global economy slowing down, consumers are likely to reduce jewelry spending since it is viewed as a discretionary purchase.
Additionally, gold is commonly used in technology and is required for circuit boards. This is why companies like Mobile Muster exist to encourage the recycling of smartphones – the gold they recover pays their marketing expenses a few times over. With the advent of autonomous cars and IoT enabled devices, which would lead to significant growth in the number of high-tech devices available globally, the demand for gold is set to rise from yet another source of demand.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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