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Monthly Wrap Up

Gold Price Today & What to Expect in the Coming Months

Aneel Waraich and Craig Hemke

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Tune in to our Monthly Wrap-Up video featuring Craig Hemke and Aneel Waraich as they explore the economic forecast for March and the coming months! They'll:

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Craig: Well, hello again from Sprott Money News at sprottmoney.com. We are ready to wrap up the month of February. My goodness gracious, one-sixth of the way through the year already. Oh, where does the time go? I'm not sure, but it's the end of February, and it's time for your "Monthly Wrap-Up." I'm your host, Craig Hemke. Joining us today is a new guest, Aneel Waraich. He is an executive vice president and a director at a company called Steppe Gold. And we're gonna talk a little bit about that today after we wrap up the month. But Aneel, thank you so much for joining me.

Aneel: Thanks for having me, Craig. Great to be here.

Craig: It's great to have you, and I'm excited to learn more about your company. Again, before we get going, though, I wanna inform everybody about the company that's a sponsor of all this content. All month long, we've had the monthly projections, chart projections from Chris Vermeulen. We've had content. David Brady and I write articles. We've had the "Ask the Expert." If you missed that, that was very, very interesting stuff, with Michael Lebowitz. I would encourage you to seek that out if you missed it a couple of weeks ago, and now we got the "Monthly Wrap-Up," all of it from Sprott Money, posted for free.

So, there's a couple things you can do. You can thank them, by subscribing or liking the Sprott Money channel, so that you never miss any content. But of course, I mean, why wouldn't you be adding physical metal here? And they should always be a dealer of choice, whether you're in the U.S. or Canada. Go to sprottmoney.com, check out all their deals, their storage deals, and of course, you can always call them, at 888-861-0775.

So, Aneel, hey, talk about stacking metal. There is so much going on in the world. You know, we began this year, which, like I said, it's only two months ago, but already seems like forever ago, everybody and their brother thought there were gonna be, like, seven or eight rate cuts, and that the Fed was gonna be on this path, and, you know, easy money and all this stuff. Well, we've caught, like, done a full 180, and now people are talking about two or three rate cuts. But yet, gold's only down 1% or 2%. What do you make of that price action in gold? What do you attribute it to, as the year has begun?

Aneel: I think, listen, I think gold has been resilient in this market. It's been, it shows you that actually it has been performing, maybe not up to the standards we were all expecting, at $3000 or $5000 at this point. It'll get there at some point, but, you know, it's just, USD strength, interest rates going up as quickly as they did over that 12-month period. And you have gold actually holding up above $2000. You would never know, if you look at the gold equities, including the majors, like the Newmonts and Agnicos, and juniors [inaudible 00:02:45] who are producers, but certainly, gold has served its purpose as the storage of value against inflation, and the divergence with interest rate cuts. And I think part of that is, is you're seeing it. Record central bank buying. The East continues to buy. You know, I'm Indian, you know, heritage, and in Asia, it's in our culture, for thousands of years, and that's not going anywhere. And it's always been that storage of value. It's a currency. That still exists, and the central banks and the BRICS countries, I think, are continuing to accumulate, at record levels, and that's helped prop up the price significantly, or keep it at this base that we're seeing. You know, not moving it up significantly, and that has to do probably with some liquidity, also, from other countries, whether it's the conflicts going on in the world today. Obviously, Russia being the main, I would say, seller, probably, to fund the conflicts, but you had that offset of liquidity, and general liquidity.

You know, nothing has changed. So, people expecting the rates to go down, that's quickly, in March, and all this, you know, stuff going into end of last year, but nothing has changed. Inflation still exists. The conflicts still exist. You know, debt, record debt levels, at least on this side of the world, continue, and continue to grow. You're seeing refinancing at the retail level, like, so, individuals like myself, you know, in Canada, I think we're probably 40% to 50% haven't even renewed their mortgages as yet. And those who are, you know, are obviously having liquidity issues, and that's impacting the equity markets, or they're having to sell assets like gold. So, all that's, I guess, is maybe keeping it down from maybe where it should be, you know, I would say, higher today. But that's a good thing, because then we have a good base to work off when things do change. I would say second half of the year's when I think we'll see some light at the end of this tunnel, maybe a first rate cut or two, gets people confident. And of course that'll be good for gold, and I think, finally, gold equities.

Craig: Yeah. You know, the last rally started from a base of just north of $1800, and was $300 in two or three months. So, you wonder, the longer we can hold it above $2000, it's just a higher base for the next launch. And I think you're right about that global demand. You probably saw, I saw something, oh, a week or two ago about Swiss exports being at one of the highest levels in six or seven years, something like 200 tons, and, you know, [crosstalk 00:05:15] most people see, you know, they recognize that's gold from the West, that's usually in, like, 400-ounce bars. It goes to Switzerland. It gets recast into the, kind of, the Asian standard four nine kilobar, and then gets shipped out to the East, from Turkey, to points East. I would suspect you probably see that in the part of the world where you trod most of the time, and do you expect that kind of thing to continue?

Aneel: I do. I actually do. I think, you know, even Mongolia, a small country that we are, pre-COVID, they were looking to increase their gold reserves. And I was talking to Eric [crosstalk 00:05:50] that I remember years ago. Now, COVID, obviously, stopped a lot of exports and revenue, and all that supply chain issues. You know, government had to convert some of that into, obviously, funds in USD. And now, as we're picking up again, I think you're gonna see, you know, our government in the region, and we're hearing all that. Like you said, that record exports from Switzerland. China's buying up at probably higher levels than they're always saying. And it's trading at a premium there, still. That market is still at a premium, I would say is a decent premium to what we're seeing here, and you're seeing a lot more continued interest from that side of the world, and I don't think it's, again, culturally, not going anywhere, and with whatever order's coming next in the world order, those who have more reserves of these hard commodities, that have real value to back up their currencies, or whatever currency that's gonna be, I think that's not stopping, certainly. And you're seeing them buy the assets up as well, right? So, a lot of these [inaudible 00:06:47] you know, recently, been up by the Chinese, coming in for all cash, they're buying, you know, all the assets around the world as well, for assets in the ground, not just the physical that's already above ground.

Craig: You've been in this industry for quite a while. Let me ask you kind of a, you know, 30,000-foot question. You know, because we're all pulling our hair out, watching the producers just plunge so far this year. Some of them are just awful. And they're dragging down the index. You think, well, gosh, like, if a company like Newmont wasn't in the GDX, maybe it wouldn't be down as bad as it is. But anyway, what, in general, what does $2000 gold mean for the exploration industry? Because it seems to me like there's just a lack of interest, a lack of buyers. You know, you can have these great resources, and you can measure and indicate all this gold in the ground. It's like, yeah, is $2000 and it holding above there an important psychological level? Do we need to break out, to get, you know, cash to start flowing into the sector again? What do you think?

Aneel: Yeah, I think you're, you know, listen, I think companies who have ounces in the ground, they're not gonna get value for expanding that today. It's not the best use of cash. It's better to survive, to get to the market, where they will value those [inaudible 00:08:02] or the ounces in the ground, or both, right? Right now, it's a waste of funds. If you have 2 million ounces, three million ounces in the ground, that's still sizable, to get value when people care. Growing that to four or five, I think is not the most prudent use of cash. It's probably not good a way. It's better to survive. So, if I was an exploration company, the best thing to do is try to survive, wait for the market to tick up, and then people will pay for exploration plays, because they know the big boys are spinning off even more cash. So, going back to the Newmonts of the world, you know, they're still spinning off cash, you know. They still have good margin. They're investing assets, non-core assets and all that jazz, but last time gold was holding above $2000, in, what, 2020, I think Agnico and Newmont were double or triple what they currently are today, right? And they are spinning off cash.

And so, I think, with the up-ticking in the gold price, you're gonna see more cash flow from these larger entities, and people will expect more M&A to happen, at the lower level, so you're gonna see more consolidation in exploration. More companies need to be consolidated anyway. I think there's still too many junior companies, so it's hard to get relevance in the market, you know. So, you need scale, and diversification, is what we find is what investors, you know, drawn to. From a production point of view, investors now wanna see a path to 300,000 ounces or over, you know, something that can come online. You know, you don't...like, for us, we're gonna get there in few years, sure. But they see a path to that, and have multiple assets to offset the risk that they exist in this world, whether it's wars, pandemics, supply chain, you name it.

On the exploration side, you know, there haven't been too many new discoveries, because we have underfunded juniors for years now, not just, as we were talking about earlier, not six to nine months of, you know, downturn, and no funding. This is years of no funding. So, in order to get the lift there, I think there needs to be some consolidation, so there's more prudent use of cash going forward from these exploration companies, because, again, no value for putting holes in the ground today, from what we see. But they'll value producers, and then people expect, as the cash flow increases from the largers and the mid tiers, coming down to even juniors, there's excess cash in the system to go advance these exploration companies. Invest in them, or acquire them. So, I think there will be that rally, certainly, but there's still, the problem is there's underfunding. These are underfunded companies. There's a severe lack of capital for explorers today. And so it will take some time, but they'll come back. They always do, right?

Craig: Yeah. Anyway, let's talk a little bit about your company, Steppe Gold. I know, you know, people, obviously, listening to this are familiar with Eric Sprott and all he's done over the decades. He has been, he's always looking for new areas that are underdeveloped and have great promise. And I think a lot of people are familiar with his enthusiasm for Newfoundland, and all that's going on there. But what they may not know is his enthusiasm for Mongolia. He's been kicking the tires and looking at the prospects there, which, you think, "Wow, that's the other side of the world," and it literally is the other side of the world. And that's where Steppe Gold operates. If you don't know, Steppe Gold, please check it out, steppegold.com. And you will see that they're actually the largest gold producer in Mongolia. Now, you might think, "Okay. That's, like, what, the, how do you compare that? That's like the top baseball player in North Dakota," right? Or something like that. I don't know. You know, you might... Again, I mean, it's not to diminish what you guys are doing, but it kind of shows how things are just, the world is just beginning to recognize the vast potential of this area as a resource play. So let's start by, please tell everybody a little bit about Steppe Gold, the recent acquisition you made, that it made you the largest producer, and some of your business plans going forward?

Aneel: Absolutely. So, going back to Mongolia, it's a resource-rich country, one of the richest, I would say, still undiscovered. Home to world-class assets, the discovery of, like, the biggest copper mine, one of the biggest copper mines in the world, Oyu Tolgoi, that Rio Tinto operates. It's underexplored, only 1% explored. It's strategically located between superpowers of Russia and China. And you have a stable government, and you can do things with the government. Very supportive, as we've shown and demonstrated with Steppe Gold. So, we're a gold and silver producer today, mainly gold from our oxide mine, that we brought online in April 2020. So, we've been in production for a few years now. Now expanding into our sulfides, which will come online in 2026. So, taking our production to over 100,000 ounces per annum, for an initial 12-year mine life, at about $950 all-in cost, and still growing, because we've only drilled down to about 350-400 meters, depending on the deposit.

So, and we're seeing mineralization and new discoveries. So, that, our project, is a phased approach. Phase one, oxide mine, we built, developed. Use that cash flow to explore and grow the much larger asset base underneath, and yet we still have 90% of our property, our mining license, that's not explored, so there's a lot of opportunity for satellite deposits, for oxides and sulfides. So, what we did is take a non-core asset from Centerra Gold in 2017, is a private company, is 1.2 million ounces at that time, inclusive of 210,000 ounces of reserves. Today, with just a little bit of drilling, it's just under 2.5 million ounces of resources, and 1.7 million ounces of gold equivalent reserves. So, that's a big uptake, with not a lot of investment, to be honest. It's just more of a geological reinterpretation of the work done with our teams, saying, "Hey, we know this is gonna grow," and we've proven that out.

We didn't have a lot of money to keep growing to 5 million ounces. We do think it's gonna be a 3 to 5 million-ounce deposit, but the cash flow from our phase two expansion will fund, will self-fund the exploration, you know. This could be a 3 to 5-million ounce deposit, on just this deposit. We have a second property that's adjoining, Erdene Resources, who've had a lot of success in-country over the last few years, with discoveries. And then we're now acquiring this new Boroo operation, which takes our production immediately from 30,000 ounces to about 90,000 ounces, starting Q3 this year. And we'll be producing at a run rate, for the next two years, at about 90,000 ounces per annum, at about a $1000 all-in cost. So, that makes us the largest producer in country, from primary sources. And then in 2026, with our fully-funded debt package for our phase two expansion, we jump up to 160,000 ounces of production, at about a $1000 all-in.

So, scale, today. By Q3 of this year, we're a 90,000-ounce producer at $1000 all-in. So, rough numbers, that's equivalent to 150,000-ounce producer, at about $1400, $1500 all-in. So, we're gonna start showing up on these screens, you know, when investors look up Bloomberg and whatnot, from a profitability arc, our EBITDA, our free cash flow, all that. So, that's huge, right? So, we have, at scale today, and we have this funded, fully-funded expansion coming online. And then we still have all the exploration upside and sizzle that Eric and all these other investors like, on both of our properties in country. So, you have a 14,400 hectare exploration license, that we haven't had the time or money to focus on. But like I said, Erdene has already, you know, shown over a million ounces adjoining our licensing, growing to 2 million, and building a license, building a mine, over the next year or so.

So, we're in the right area there. And then our current license, 90% of it, we haven't actually explored. So, only the deposits sit on about 10% of the mining license, and only, still drilling at 350-400 meters and growing. So, that's gonna grow significantly, I would say, just from at depth, and then we have opportunities for more satellite deposits on that. So, but the key part is self-funded exploration. So, we're gonna [inaudible 00:15:57] fund without having to go to the market on new discoveries to keep growing this asset base. And the goal is to have three or four operating mines in Mongolia, where our focus is. We are Mongolian company. We're well-received there. We started at, you know, greenfield projects we bought off of Centerra, with three guys and no money, to now 350 local employees, and doubling that in the next two years, with just our current project, and also acquiring 500 new employees with our integration of the Boroo complex shortly. So, a lot going on, and we've accomplished quite a lot in short order, and, you know, our goal is to become a 300,000-plus-ounce producer, focused solely on Mongolia, where we have an edge, where we have first-mover advantage, we have the infrastructure, the cash flow, and cash flow in production growth.

Craig: Well, and it's a fascinating story. You know, again, we're all familiar with the companies that are constantly diluting themselves. You know, they're out staking and drilling, and then they need more cash. And then all of a sudden, you know, they gotta come back... Not that that isn't something you might wanna do someday, but the fact that you're able to cash-flow your future exploration off of your current production, in an area where who knows what you might find up there? Totally unexplored, you know, virgin territory, to a large extent. I find that fascinating. And you think about where you are, talk a little bit, just a little bit more about your position, and the jurisdiction of Mongolia, and what the, you know, what the rule of law is like, and what the infrastructure is like. I mean, I think we, most people are familiar geographically, the idea that you're kind of right between China and Russia, which are pretty big gold accumulators, you know, that might look at a Mongolian company and go, "Huh." But outside of that, just, the jurisdiction in general, so people can feel comfortable if they decide they want to invest in a company like Steppe Gold.

Aneel: Yeah, absolutely. So, you know, Mongolia itself became independent, you know, when the Soviet broke up. It was one of the Soviet satellite countries. So, in the early '90s, gained independence. Arguably, and CNN was in country in the summer that, they did a three days, you know, shooting out of Mongolia for Quest Means Business. They even said it themselves, is probably the best functional democracy out of those former Soviet countries and region. So, that's a huge thing. Parliamentary elections every four years, with a one-year offset for the president. But the prime minister really, just like in Canada here, you have members of parliament, prime minister runs the country, I would say the president's more like a governor-general role, if you wanna put it that way, the comparison.

So, stable government, major majority for the last two terms since we started Steppe Gold, within 2016. Pro-mining, pro-foreign investment. Mongolia is a mining jurisdiction. That's the biggest driver of the economy, biggest employer. [crosstalk 00:18:49] so very important to the country and the government. They haven't changed any taxes, or royalty regime, you know, since we started our company. In fact, they actually gave us capital when we announced our feasibility study for our expansion in 2021, you know, and we've since paid back, but it helped us grow when the markets were soft and we still had to raise our project financing. So, supportive government. We own 100% of our asset. And, you know, there's already a world-class, you know, elephant-size asset discovered by, you know, Robert Friedland, Rio Tinto now operates, called Oyu Tolgoi. So, you can build a world-class mine, you can discover a world-class mine, and build it, and operate it in country. And that employs about 16,000 people today, and that's growing and expanding.

So, Rio Tinto showed their confidence in the country by consolidating, about a couple years ago, and buying Turquoise, because they're consolidating the ownership and taking on the associated CapEx. That's a big endorsement. And they've publicly said themselves in the last six months, many times, how strategic Mongolia is, how excited they are, and obviously, they're there. Since then, you've had the Chinese major Zijin Mining make an investment in a copper-gold company called Xanadu. The French Government, just last year, Macron was there, and they signed a $2 billion uranium agreement. The Japanese, the Koreans, the Germans, the Indians, Canadians, the U.S., are all there. So, part of, you know, go back to, we're strategically located between Russia and China, but we're favorably located there, so that we're more strategic to all these other countries that I just mentioned. So, [crosstalk 00:20:19] in a way, a level of protection. So, no one can take us over. You know, they tried, right? You know?

Craig: [inaudible 00:20:26]

Aneel: Yeah, exactly. So, it's a country that's, I would say, one of the last frontiers. It's like going to, you know, [crosstalk 00:20:35] like Africa, you know, [crosstalk 00:20:36] years ago, and you have all that opportunity, and you have all these right partners here coming in. So, very exciting time to be involved in the country. How it's safe, there's still a rule of law, like we mentioned. In fact, you know, we've had the government come to PDAC here in Toronto. In fact, they're coming this weekend. Since 2016, since we even started, coming on the stage, talking about how supportive they are, they don't want to own the assets. They wanna be a passive royalty partner, collect the taxes, and help support partners like us grow their economy, and educate and skill, and employee there the local workforce. So, yeah [crosstalk 00:21:15]

Craig: That's fascinating. It really is. I mean, it's something I'm sure most people watching us have never really even considered. And you can certainly see why Eric and his team are getting involved there. It's a fascinating opportunity. People wanting to learn more, what are your ticker symbols in the U.S. and in Canada?

Aneel: Yeah. So, on the main board of the Toronto Stock Exchange, our ticker is STGO. Sierra Tango Golf Oscar. And the U.S., OTCQX, STPGF.

Craig: Got it.

Aneel: And of course, we're always available to talk to any investor of any size. I speak to the smallest to the biggest, like Eric, and everyone in between. Very accessible. Our website has lots of good videos of our site, [crosstalk 00:21:56] operating mine, the people. And we're always accessible. So, it's never a better time to get into a producer that's expanding and exploring. We create it...we have a nice little mix here, and a lot of upside, obviously, you know, given where the market is today.

Craig: And just make sure I didn't butcher the website address earlier, did I? Just steppegold.com?

Aneel: It's steppegold.com. S-T-E-P-P-E, gold.com.

Craig: Right. For those of you that failed geography class, steppe, right, that's a land region [crosstalk 00:22:28] as you move north, okay?

Aneel: That's right.

Craig: So, it's not S-T-E-P, like what you take to come up from your basement, right? S-T-E-P-P-E gold.com. Aneel, it's been fascinating to visit with you, and I hope we can do this again soon. As we wrap up February, and wrap up the month, I want to remind everybody, a new month is beginning. We got an extra day in February that we gotta deal with, but it'll be March soon enough, and there will be a whole bunch more content coming from Sprott Money. So, if anything, click the like or subscribe button, on whichever channel you've been listening to this or watching this, so that you're reminded every time Sprott Money puts something out. And then of course, stop by Sprott Money anytime you're in the market for physical gold and silver, or a place to store it. 888-861-0775 is the number. You can call them. It won't cost you anything to do that either. Aneel, it's been great visiting with you. And again, this has been Aneel Waraich. He is an executive vice president and a director at Steppe Gold, a pretty good-size holding of Eric Sprott and his team. I guess you might as well check it out. Aneel, thank you so much for your time. It's been fascinating.

Aneel: Thanks for having me.

Craig: From all of us at Sprott Money News and sprottmoney.com, thank you for watching. Hey, we'll talk to you again, with all kinds of content coming at you in March.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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