Post by
Ridgeback on Jan 09, 2024 8:23am
TD UPDATE Gold/M&A
Gold posted a volatile but strong 2023, defying expectations amidst a rising rate environment. The gold price started the year at $1,839/oz, moving up to $2,050/ oz in early-May amid the regional banking crisis in the U.S., followed by a gradual decline to $1,820/oz in October due to expectations of a "high for longer" Fed stance. Gold ended the year strong at $2,063/oz on the back of heightened geopolitical tensions, expectations of a Fed pivot as the economy weakened, and strong central bank buying.
The gold price averaged $1,944/oz in 2023 and $1,979/oz in Q4/23, an increase from $1,927/oz in Q3/23. We remain positive on the gold price, with interest rate cuts expected in 2024. The U.S. Fed rate cycle has historically been a significant factor driving gold price. Over the past 40 years, gold has increased an average of 34% during an easing cycle following the last rate hike of a tightening cycle vs. an average of 6% during periods of tightening. With the Fed taking a more dovish stance as of late, we expect the end of the hiking cycle and the beginning of easing cycle to be supportive to gold price.
TD Securities' Global Rates Strategy Group is expecting the Fed to start cutting rates in May and to deliver 250bps of rate cuts by early-2025. We have increased our gold price deck by an average of 4.4%. We are now forecasting an average gold price of $2,100/oz in 2024 (from $2,000/oz), $1,950/oz in 2025 (from $1,850/oz), $1,850/oz in 2026 (from $1,800/oz), and $1,800/oz in 2027 (from $1,700/oz). We have increased our long-term gold price to $1,750/oz (from $1,700/oz), beginning in 2028 (Exhibit 2).
M&A expected to remain on the forefront. 2023 was a significant year for gold M&A, featuring Newmont's acquisition of Newcrest, Agnico and Pan American completing their acquisition of Yamana, B2Gold's acquisition of Sabina, and Calibre's recently announced acquisition of Marathon Gold, among others.
With a strong gold price, discounted multiples in the junior/developer segment, and strong balance sheets among the larger producers, we expect M&A to be a key theme in 2024, particularly on the asset-level as acquirers (i.e., Newmont and Pan American) look to divest assets and improve their capital positions.
Maintaining our OVERWEIGHT sector recommendation. Inflationary cost pressure appears to have eased, and we are expecting relatively flat overall cash costs in 2024 vs. 2023. A strong gold price and stable operating costs would result in increasing margins for producers, and we believe they are increasingly attractive compared with the royalty companies. Our ACTION LIST BUY pick remains B2Gold. Our top picks are Agnico-Eagle among the large caps and K92 among the mid-caps. For silvers, our top pick is MAG.