Gold Price Remains Elevated Amid Softening Demand
The gold price has been trending downward for most of this quarter due to softer demand, but it remains significantly above its cost support level. According to a recent report by Morningstar Australia, the price has retreated further and is currently at USD 4,400 per ounce, down modestly from previous levels. Despite the decline, the gold price is still more than double the estimated long-run cost of extraction.
The softening demand for gold can be attributed to a decrease in investment, as well as lower jewelry and central bank demand. Jewelry traditionally accounts for the largest source of demand, but high prices are acting as a headwind. Central banks' purchases, while still elevated, are also trending downward as they diversify their reserves.
The midcycle gold price reflects the long-term marginal cost of extraction and is used to value gold miners using realistic assumptions rather than current market prices. This approach takes into account the costs associated with extracting gold from the ground and aims to balance supply and demand in a normal market.