Gold SWOT: The Sharp Rise in Gold Prices This Year Could Provide a Nice Bump to Miners’ Earnings

Strengths

• The best-performing precious metal for the past week was silver, up 1.36%. The Times of India is reporting that the Reserve Bank of India (RBI) has increased its gold purchases to enhance the diversity of its foreign exchange reserves amid fluctuations in the U.S. dollar. The surge in the value of outstanding gold reserves accounted for more than 80% of the nearly $3 billion rise in forex reserves.

• Gold rose to trade near a record high, even as investors weighed a shift in messaging from Federal Reserve Chief Jerome Powell, who said the central bank will likely keep rates on hold for longer than originally planned. The precious metal is up about 15% so far this year, with gains partially driven by haven demand as geopolitical tensions in the Middle East and Ukraine continue to escalate, according to Bloomberg.
• SilverCrest Metals reported Q1 silver production of 1.41 million ounces, ahead of Scotia’s estimate of 1.20 million ounces, and gold production of 14,700 ounces, ahead of their 12,400-ounce forecast.

Weaknesses

• The worst-performing precious metal for the week was platinum, down 5.69%. In terms of retail demand, ETF holdings remain subdued in the West. And, while Costco gold bar sales are making headlines, Perth Mint and the U.S. Mint sales were down by 80% and by more than 90% year-over-year, respectively in March, according to JP Morgan.
• First Majestic reported preliminary gold production for the first quarter that missed the average analyst estimate. Preliminary gold production was 35,936 ounces, versus the estimated 39,011 according to Bloomberg.
• Endeavour Mining Plc has been accused by Lilium Mining of misrepresentation over the sale of two African gold mines, as the fallout from the tenure of ousted Chief Executive Officer Sebastien de Montessus continues. Lilium made the allegations after purchasing the Wahgnion and Boungou projects in Burkina Faso last June, according to Bloomberg.

Opportunities

• Silver prices are finally catching up more stridently with gold’s rally, particularly this week, with the gold-to-silver ratio moving from 90 to around 84 currently. JPMorgan continues to think there is also more to come here. As gold continues its march higher this year and into 2025, they expect this ratio to fall towards the mid-70s. One of the biggest beneficiaries of a rising silver price is Aya Gold & Silver Inc. (AYA), with most of its metal production actually being silver, Aya is one of the most exposed companies to a rising silver price.  Price targets were raised this week after the company released its much-anticipated Boumadine initial resource statement.
• The sharp rise in gold prices this year could provide a nice bump to miner earnings starting in the current quarter, assuming bullion prices hold through the end of June. The gold price is now more than $300 above the fourth-quarter average, while the mining stocks -- notably industry leaders Barrick Gold and Newmont -- generally have performed poorly this year given the move in the metal, as noted by Barron’s.
• Gold is set to reach $3,000 an ounce over the next six to 18 months on increasing investor inflows amid expectations that the Federal Reserve will eventually cut interest rates, Citigroup said, adding to a roll call of Wall Street banks that have raised forecasts.

Threats

• Producers continue to face rising costs despite modest easing in input prices, which have been offset by persistent labor inflation. RBC estimates 8% wage growth over the past year in the mining industry, with Australia outpacing Canada/U.S. by over 2x.
• The Globe & Mail cites that Mali could be seeking to expropriate Barrick's Loulo-Gounkoto mine, following reports on this topic by two other publications, the Africa Report and Africa Defense Forum. These reports follow prior news in 2023 that Mali was seeking to complete an audit of the mining industry and could revise its mining code.
• According to RBC, the timing of road remediation remains unclear for Gold Road Resources at the Gruyere mine, hence the timeframe of any cost and/or production impacts remains unclear. Thery have indicated Q2 will produce less gold than expected. If the haul road access remains impaired, this could bring CY24 guidance into doubt.