Here’s one for the gold bulls – Citi reckons gold is headed to $US2700-$US3000/oz ($A4020-$A4468) next year.

That’s some 14-27% higher than the current spot price and at either level, the previous records set in the US and Aussie gold price in May and April respectively would be smashed.

Needless to say such an outcome would crank up the already increased M & A activity in the ASX gold space like no tomorrow, with advanced exploration/development projects to become easy pickings for growth-focussed producers.

Why, even the struggling junior sector could get a leg up as the equity taps are turned on in response to the new paradigm.

Now any outfit can make a bullish call on the gold price, or a negative one for that matter.

But this one from Citi is different because it is based on a “new fundamental, physical investment-led framework” which the investment bank says helps to explain annual price movements over the past 55 years.

More than that though is the core “notion” of the framework that investment demand (private and public sector) taken as a share of gold mine supply, is the primary driver of gold pricing.

By extension, the importance the current generation of investors place on movements in real interest rates in determining gold prices is probably overblown.

Citi noted gold investment demand in China and from central banks rose to 85% of mine supply during the first quarter of 2024, and averaged more than 70% of mine supply over the past two years – up from only 25% over the three years prior.

“The increase in investment demand from China and global central banks has more than offset the negative investment demand impulse coming from higher US (real) interest rates which has required gold prices to move to record highs in order to destroy jewellery demand and incentivise scrap supply,” Citi said.

It said the framework allows investors to “contextualise, model, and forecast scenarios for the various physical gold market drivers and prices”.

“We hope that this framework can help to rejuvenate gold investment and trading, since many investors have avoided investing in gold owing to the lack of an intuitive, regime-independent, fundamental framework that can stand the test of the time.

“There has potentially never been a better time to publish this framework since gold’s bellwether relationship with US real interest rates has broken down quite spectacularly over the past two years, with gold reaching all-time highs despite high real rates.”

Its call on gold hitting new highs next year is based on investment demand absorbing almost all of mine supply during the next 12-18 months.

The next move higher in investment demand and prices it is forecasting are driven by expectations of lower US interest rates (8 consecutive Fed cuts starting in September), continued Chinese and central bank buying, weakness in savings and property, weaker private sector sentiment and de-dollarisation.

There is a bunch of other potential developments that could be supportive, including the potential for Donald Trump’s return to the White House to trigger a full blown trade war with China, perish the thought.

Trump’s lead over the Biden camp in the polls has been growing post Biden’s sleepwalking performance in the recent debate. And if either camp is seen to be more likely to stir the pot and deliver market shocks of one type or another, and increased geopolitical risks, it is the Trump camp.

Nickel & lithium:

Nickel and lithium equities remain friendless. But for how long?

Investors are waiting for a meaningful improvement in the price of the pair before dipping their toes back in the water.

It’s the usual short and near-term stuff to be expected when a commodity takes a price hit.

But big end users which have to plan for 20-year outcomes are acting very differently, often at the behest of their national governments.

Without secure and stable supply of ESG friendly metals like nickel and lithium (along with copper, uranium and a whole bunch of other metals) their industries are threatened by the new energy shift.

Look beyond the current price weakness in key metals for the new energy world, and supply has to increase many times over in the long run to meet the expected demand surge.

Equity investors can warm to that over time as incentive pricing takes over to encourage new supply. But for industry and governments, how to avoid shortages in supply in the long run is the key concern in the here and now.

It is against that backdrop that the big laterite development projects in WA have attracted European and Japanese support in  the last year or so. It’s why Korean battery maker LG has stepped in to fill the void left by weak-at-the-knees banks at Liontown’s Kathleen Valley lithium project.

And it is why Japan’s Mitsubishi Corp is cosying up to Chalice and its Goneville project, for the palladium as much as the nickel thanks to growing consumer preference for hybrid cars, and the doubt over supplies from the dominant producers Russia and South Africa.

Having said all that, the big unknown in the Aussie metals scene at the moment is whether BHP too takes a long-term view of where demand is headed, and what that will mean for incentive pricing, when it gets around to a decision of the future of its 80,000tpa Nickel West business next month.

Nickel West has been a loss maker in recent times but prices have improved. BHP is nevertheless on the record as saying the current surplus in nickel has a few years to run yet thanks to rampant Chinese-sponsored production growth in Indonesia.

A rationalised Nickel West better able to ride out the current downturn with government critical metal financing support would make sense. An each-way bet if you like.

Centaurus Metals:

There is a debate about just when the nickel surplus (and the lithium surplus for that matter) will come to an end.

Some say Indonesia is out to slow the growth in its production of what Andrew Forrest calls “dirty’’ nickel so supply deficits are just around the corner, with many of the operations shuttered in the current downturn to never come back.

Others like BHP reckon it could take to the end of the decade. If it closes Nickel West the supply deficit will come well before then.

Taking 2027 as the mid-point of the opposing forecasts on when supply deficits will emerge would do a developer like Centaurus (ASX:CTM) just fine.

It has just released a feasibility study into the development of its Jaguar nickel sulphide project in northern Brazil, with first production targeted for the second of 2027.

A simple nickel flotation plant producing 18,700tpa of nickel-in-concentrates over an initial 18-year mine life is the plan.

Using a conservative life-of-mine nickel price assumption of $US8.98/lb comparted with spot of $US7.85/lb, a low capital intensive $US371m development was assessed to have a post-tax NPV of $A997 million and an IRR of 31%,.

Given the jockeying by global industry and governments for long-term and low-cost ESG friendly new energy supplies mentioned in the previous item, Jaguar with its feasibility study under its belt emerges as a strategic yet currently unaligned future supply source.

To that end, the company has got Standard Chartered on the job to find a strategic partner, with a preference for the incoming partner to take up a minority investment at the project level.

Fair enough. But with the company’s current’s modest market cap ($220m or .22x Jaguar’s NPV), a takeover bid could well be the end game.