Precious Metals: 2024 Outlook and Q4/23 Preview
Strong Set-up for Gold in 2024
Isolated Cost Pressure Remains an Issue
TD Investment Conclusion
Strong set-up for 2024 with ongoing strong physical demand for gold, and
expected Fed pivot.
In 2023, central bank buying maintained its lightning pace, with annual net
purchases totaling 1,037 tonnes, coming close to the 2022 record of 1,082 tonnes.
We expect central bank buying and other physical flows to continue in 2024, driving
demand for the precious metal.
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 the easing cycle
to be supportive to the gold price. TD Securities' Global Rates Strategy Group is
forecasting the Fed to start cutting rates in May and to deliver 250bps of rate cuts
by early 2025. Consequently, we expect strength in the gold price throughout 2024,
reaching $2,200/oz in Q4/24.
Cost pressure continues despite declining inflation numbers. Management
commentary and early guidance from several producers have led us to raise our
cost expectations for 2024. We have consistently heard from management teams
that cost pressure (particularly labour) is high in North America and Australia. We
are forecasting that in 2024, cash costs will increase 3% y/y to $983/oz and AISC
will increase 1% to $1,442/oz (Exhibit 3).
Margins expected to grow due to a higher gold price. Historically, the gold
producers share price has been correlated with the change in AISC margin (Exhibit
4). Based on our gold price forecast and cost estimates, we are forecasting that
AISC margins will expand 28% y/y to $658/oz in 2024 (2023E: $517/oz). That would
suggest potential for the S&P/TSX Gold Index to rise 11%. With costs expected to
increase moderately, the margin expansion is purely driven by our expectation of
higher gold prices.
Maintaining our OVERWEIGHT sector recommendation. Although we are
expecting a moderate increase in overall cash costs in 2024 vs. 2023, we do not
expect another significant wave of cost inflation. We expect margins to climb in 2024,
given our forecast of higher gold prices (2024E: $2,100/oz, +8% y/y), and expect
equities to perform well as a result. 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.
We will review our target prices and/or recommendations as the companies report
their Q4/23 earnings and announce 2024 guidance.