TD Investment Conclusion Gold was strong in Q1/23, averaging $1,892/oz (~9% above the $1,731/oz average in Q4/22). Gold started the quarter with momentum as expectations of U.S. Fed hikes continued declining. The shock of SVB collapse and the resulting banking crisis in March sent gold soaring to $2,000/oz, which has proven to be a sticky level.
Central banks continued to be strong buyers of gold, with net global gold reserves rising by 52t in February, according to the World Gold Council, the 11th consecutive month of net purchases following the 74t in January.
The S&P/TSX gold index (U.S. dollar) increased 10% in the quarter. We have raised our precious metals price deck to reflect spot prices; however, we could see near-term price volatility as persistent inflation and a stabilizing banking environment could lead to further U.S. Fed rate hikes.
The U.S. Fed faces the challenge of balancing inflation with the need to maintain financial stability in the wake of the SVB crisis. TD's Rates team forecasts a 25 bps U.S. Fed rate hike in May and June. The combination of a higher Fed rate and a stabilizing banking environment could push real rates higher and weigh on gold in the short term.
We are now forecasting an average 2023 gold price of $1,954/oz (previously $1,850/oz). Historically, the U.S. Fed rate cycle has been a significant factor driving the 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 7% during periods of tightening.
With inflation remaining stubbornly high and the Fed perhaps being forced to ease off the brakes earlier than previously anticipated, given the global banking crisis, the gold price has reacted accordingly, increasing ~12% YTD. With the expectation that the Fed will finish hiking rates in the second half of 2023, we have raised our 2024 gold price assumption to $2,000/ oz (previously $1,850/oz).
M&A remains on the front burner: M&A continues to heat up with the proposed offer from Newmont to acquire Newcrest, B2Gold buying Sabina, and various other deals announced across the mining and metals universe.
There appears to be improving investor sentiment towards such deals, in our view. We believe M&A should continue, given the strong sentiment, reasonable multiples in the junior/ developer sectors, and strong balance sheets of the mid-tier and senior producers.
Our ACTION LIST BUY pick remains B2Gold. Our top picks are Agnico-Eagle among the large caps, and K92 and Orezone among the smaller caps. For silvers, our top pick is MAG Silver, and we continue to prefer Franco-Nevada and Triple Flag among the royalty names.
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Will Moz be a target?