CIBC EQUITY RESEARCH
July 9, 2024 Rating Change
Precious Metals Outlook
Guess Who’s Back, Guess Who’s Back, Guess Who’s Back…
Our Conclusion
With what can only be described as a disastrous debate performance by
Biden, the spectre (and spectacle) of a second Trump presidency looms on
the horizon and could cause a parabolic shift in the gold price in 2025.
Buoyed by wealth preservation in 2023 and 2024, against a backdrop of
macroeconomic and continued geopolitical headwinds, central banks
continued the rapid pace of purchases. Meanwhile, consumers bolstered
retail demand for jewellery, bars and coins for wealth preservation and hard
asset diversification. ETFs saw net liquidation, but ETF demand (driven by
the Western economies) generally plays catchup to the physical demand
from the East. This was the case in 2023 and continues in 2024.
In May, gold hit a peak of $2,450/oz before paring back on typical summer
seasonality. With rate cuts still looming, and the possibility of a very dovish
US President who may test the independence of the Fed, we expect that
rates will fall, while inflation remains persistent, fuelled by fiscal stimulus and
softer rates. All this bodes well for gold. We expect that ETFs will pick up the
pace in late 2024 and into 2025 as rate cuts become a reality.
Key Points
We are raising our gold price forecasts to $2,290/oz in 2024, $2,600/oz in
2025, $2,400/oz in 2026 and $2,200/oz in 2027. Longer-term (2028 and
beyond), we are raising our gold price forecast to $1,975/oz from $1,875/oz
based on marginal costs of extraction and persistent capex inflation. On the
silver side, we are raising our forecasts to $28.75/oz in 2024, $34.50/oz in
2025, $32.50/oz in 2026 and $30.50/oz in 2027, while our longer-term
forecast (2028 and beyond) rises to $26.00/oz.
Demand for gold remains strong, with central banks continuing to purchase
gold driven by a longstanding strategy of USD diversification and, in some
cases, efforts to sanction-proof FX reserves. Additionally, over the past year
retail demand has picked up, particularly in the Eastern economies where
stock and real estate markets remain soft and investors look for wealth
preservation via hard assets. Unsurprisingly, ETFs have seen net outflows,
which we expect will now reverse with impending Federal reserve rate cuts
(see our February 2024 Precious Metals Outlook, outlining expectations of
a Fed pivot). The US election now adds a heightened element of bullishness
to our forecasts. In this note we evaluate the possible impact of the two US
Presidential candidates on the gold price outlook, which we believe in both
cases is constructive, with Trump likely far more positive for gold.
We are raising our rating to Outperformer on Artemis Gold, Endeavour
Mining, and Newmont Mining. We are reducing our rating to Neutral for
Centerra Gold on valuation. Our top picks in the sector remain Agnico Eagle,
Kinross Gold, Pan American Silver and Wheaton Precious Metals