RE:Gold Fund Holdings Update - July/22 and Attribution Analysis We have lowered our precious metals price deck in the face of positive real rates and a strong U.S. dollar, both of which have negative correlations with the gold price. We are now forecasting an average 2022 gold price of $1,819/ oz (previously $1,915/oz) and a 2023 gold price of $1,800/oz (previously $1,850/ oz). In H2/22, we expect still elevated inflation and equity market turbulence to attract some safe-haven support for the price. In 2023, the likelihood that the Fed will have to cut interest rates is increasing, which would weaken the U.S. dollar, reduce real rates, and improve the outlook for gold price, in our view.
Cost inflation pressure has been top of mind for investors. In conversations with a number of companies in our coverage universe, management teams expect that operating cost inflation will run at ~10% on a y/y basis for 2022, rather than the 5-7% expected at the start of the year. There has been some moderation in recent weeks on inflationary pressure as oil-and-gas prices have declined, but explosives and reagent prices remain elevated. We expect some companies to increase 2022 cost guidance, while others are expected to guide to the upper-end of the guidance range.
Production to improve in H2/22. As expected, many companies have indicated that Q1/22 will likely be the low point for the year for production. Mine sequencing, maintenance, COVID-19-related impacts, M&A, and geopolitics have all played a role in affecting Q2/22 production, although to a lesser extent than Q1/22. Barrick and Newmont have guided towards stronger H2/22 production. We expect that production will be H2/22-weighted, with several companies guiding for 52-60% of production coming in H2/22.
We are maintaining our sector OVERWEIGHT recommendation. With a 12-month view, we expect an improvement in precious metal prices as the current rate-tightening cycle ends, interest rates decline, and gold's attractiveness improves for investors. Our large-cap top-picks are Agnico Eagle and FrancoNevada. Among the mid-caps, we prefer SSR and K92 and our top developer pick is Augusta Gold.
We acknowledge some target returns do not align with recommendations and will review over the coming weeks during the earnings season. July 21, 2022 Exhibit 4. TD Securities Target Prices and Recommendations Source: TD Securities Inc. estimates
Developers
Augusta Gold Corp. C$3.50 C$3.50 113.4% Spec. BUY Spec.
BUY SPEC. Gold Standard Ventures Corp. -----------Restricted
Marathon Gold Corp. C$2.75 C$2.75 96.4% BUY Spec.
Sabina Gold & Silver Corp. C$3.00 C$2.50 ↓ 155.1% Spec. BUY
Prime Mining Corp. C$4.50 C$4.50 216.9% Spec. BUY
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I would expect TD to reduce their speculative outlook for Marathon once the Federal Permits are approved. Perhaps they will even say Positive in the next review?