In their own precious metals earnings preview, Stifel analysts Ingrid Rico and Stephen Soock predict rising production through the year will provide a “springboard” in the second quarter.
“Gold price held steady above $2,000/oz in Q1, peaking at $2,083/oz in March 2024 as we saw the start of a solid gold rally,” they said. “Fed policymakers confirmed the expected rate cuts and ruled out possible rate hikes in 2024, which raised demand for the yellow metal. A mixed set of macroeconomic data releases in the US shows policymakers are more inclined towards tackling the sticky inflation and building more confidence towards easing price pressures. The bond market is now projecting two rate cuts in 2024 (vs three at the start of the quarter).
“The rising geo-political tensions in the Middle-East and heavy Chinese buying driven by safe-haven demand also contributed to the higher gold price. The real-estate crisis, tepid stock market and shaky economy have pushed Chinese investors towards gold. Gold reserves at PBoC rose consecutively since November 2022 and now stand at 2,262t (2,050t in March 2023). During the first three months of 2024 the PBoC reported gold purchases of 27t. Gold ETFs’ percentage share of AUM globally is at just 1.19 per cent – the lowest level since 2005. This indicates to us that investors are underexposed to gold and generalists may be ‘forced’ back into the space as gold and gold equities rally. Short interest in futures contracts has held fairly steady since the start of the run-up in price and capitulation on this front could provide another leg up for the yellow metal.”
For the first quarter, they expect gold miners to display “soft” production results, logging 23 per cent of annual output and anticipate a build up through the year. They also think margin expansion is likely to be much more evident in the second quarter and beyond.
“We now forecast an average 2024 gold price of $2,200/oz safe haven demand and expectationsof rate cuts in 2H,” they said. “We have adjusted our long-term gold price forecast to $1,900/oz (from $1,800/oz) with gold establishing a new ‘base’ evidenced by the recent low correlation to real rates. For silver, we are forecasting an average price of $26.50/oz in 2024, as the metal is trading at a significant discount based on the current Au:Ag ratio of 90:1 vs the last 10-year average of 79:1, largely due to slower industrial demand from China. We have also adjusted our longer term silver price upwards to $24.75/oz (from $24.00/oz) as we believe the metal should catch up with China demand picking up.”
With their price deck changes, the duo made a series of target price adjustments.
For senior producers, their changes are:
* Agnico Eagle Mines Ltd. (“buy”) to $104 from $94. The average is $93.25.
Ms. Rico: “We view Agnico Eagle as a high-quality, senior gold producer. Following the merger with Kirkland Lake and consolidating ownership of the Canadian Malartic mine, AEM is cementing its position of dominant Canadian gold producer with production in Canada of more than 2.7Moz/yr (80 per cent of AEM’s total production). The company has a strong track record of creating value for shareholders through excellent execution, and we believe that considerable footprint in the Abitibi offers long-term value opportunities by leveraging infrastructure and regional expertise. The company has routinely chosen smart development and expansion projects from its pipeline, which have been largely funded through internally generated cash flow and low-cost debt. Continuing strong cash flow generation supports reinvestment to develop the project pipeline, and Agnico is expected to maintain its track record of returning cash to shareholders through sustainable dividends.”