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Lion Selection Group investment manager Hedley Widdup suggested there’s no limit to how high the gold price can go.

Gold has reached a record high of more than US$2400 an ounce this year and is up by roughly 40% since late 2022.

Widdup said gold varied from most other commodities, which were purchased by manufacturers for use in things like steel and batteries and therefore had a cap.

“Gold’s value-in-use is just that it’s an investment that protects people, provides liquidity, when they can’t get it from cash or when there’s difficult and unusual things happening in the world,” he said during a The Watchlist webinar.

“So gold is absolutely uncapped in terms of the price it can get to. The highest price people will pay for gold is dictated by people’s imaginations and not what they’re able to pay in order to pass it onto someone else.”

According to Widdup, gold production peaked in 2018 after a decade of increases, and while output has increased since a dip in 2020, it remains below the peak.

Previous gold bull runs in the 1970s and early 2000s coincided with a drop in gold production.

“Now that’s not to say it will be the nature of the next bull run in gold – whenever that happens – and perhaps we’re in it now,” Widdup said.

“But we have seen production fall away and if, over that 50 to 60-year timeframe, one of those things that has corresponded with a gold bull run starting is that production weakness and things tightening in the market, we’ve seen that exact set-up happen now.”


Macroeconomic factors

“The long-term fundamental for gold is driven by an inverse correlation – gold has tended to flourish in an environment where real interest rates, the rate of interest minus inflation, have been low to negative,” Widdup said.

“With interest rates going up, it’s created this environment for gold which is not productive.

“If you had to calculate how that was going to go, you might say it would move sideways or possibly a little bit down, but we’ve seen a very strong move upwards so it leads to a question mark – why is that happening?”

Widdup said that was one of the reasons why gold looked so interesting.

Another one is central bank purchases.

Western banks were big sellers of gold up until 2009, while the BRICS nations (Brazil, Russia, India, China and others) had been the big buyers of gold since then.

“This transfer of gold from West to East has been happening for a while, so it’s a long-term fundamental but it’s getting interesting now,” Widdup said.

Widdup pointed out that China had been buying gold for 18 months straight.

“If you look back through World Bank data, China’s purchasing of gold is one of the most aggressive buying streaks we’ve seen by a central bank in the data which goes back to 2002,” he said.

“That stands out.”

Even still, of China’s foreign reserves, gold accounts for an “exceptionally low” level of about 6%.

Widdup said the World Bank had suggested central banks should be holding about 22% gold.

Consumer demand in China for gold is also rapidly rising.

The other correlation of gold which has broken down is the gold price and exchange-traded funds (ETFs), making it the first gold price rally against ETF selling.

Widdup said it was significant that Western ETFs were selling, while Asian ETFs were expanding their holdings.


While the ASX-listed gold producers have risen this year, the ASX Gold Index was still underperforming against the gold price.

Share prices of the junior explorers have gradually collapsed since interest rates started rising.

“The question is when are they going to catch a bid?” Widdup said.

“When FOMO kicks in, you might start to see the Western market stop selling or become buyers, and if that’s the case, it’s going to firm that up for a lot of things and I think that’s probably the case for gold explorers as well.”

Lion Selection, which has more than A$66 million cash, has been a keen investor in junior gold explorers.

It holds stakes in Alto Metals, Saturn Gold, Great Boulder Resources, Sunshine Gold, Plutonic, Brightstar Resources and Koonenberry Gold.

“Now is a great time to be looking for good management teams with interesting and dynamic projects,” Widdup said.

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