The US Federal Reserve’s 50 basis point interest rate cut provided the backdrop for the most recent edition of the Metals Investor Forum, held in Vancouver, BC, from September 20 to 21.
While there was some discussion of uranium, base metals and rare earths, it was gold that dominated discussions as the precious metal’s price soared above US$2,600 per ounce on the first day of the conference.
The expert speakers discussed how long the yellow metal’s momentum is likely to continue, and shared their thoughts on when gold-focused developers and juniors may start to follow major miners higher.
Most of the keynote presenters see US$2,600 as just the start of a trend of higher gold prices over the next few months. Chen Lin, full-time manager of his family assets and founder of the “What is Chen Buying? What is Chen Selling?” newsletter, sees the yellow metal hitting the US$3,000 mark by early next year.
“September is always the beginning of the gold season. We have an Indian holiday coming, Christmas is coming and Chinese New Year (will drive) physical demand. Even though it’s a very high price, people are still buying,” he said.
Although the gold price is currently high, Lin noted that it tends to be a good performer when the Fed begins to cut rates and said the metal presents a good opportunity whether there is a recession or not.
Jeff Clark, founder and editor at TheGoldAdvisor.com, suggested that US$3,000 by Christmas isn’t out of reach. However, he noted that he is less focused on the price of gold than he is on gold stocks.
Lin’s sentiment was echoed by Hard Rock Analyst Editor Eric Coffin, who predicted that gold will continue to have upward momentum, reaching US$2,800 by the end of the year. He noted that the gold price was up 10 percent in the second quarter compared to Q1, and said he sees similar growth potential in the current rally.
Coffin pointed to four key factors that will support momentum in the gold market:
The combination of these factors has led not only to the current spike in gold, but also to a longer-term trend that has made gold one of the best-performing assets this year. “When it comes to outside factors that affect the market, it’s just tailwind after tailwind after tailwind. So I don’t really see the trend changing,” Coffin said.
He did draw attention to a quick spike and retraction in the gold price following the Fed’s rate cut on September 18, suggesting that the size of the cut may have spooked some investors.
Coffin speculated that the central bank may have done a larger cut as insurance.
“I think there is a couple of reasons they did a 50 basis point cut. One is that they arguably should have done a 25 point cut at the last meeting … and that they were maybe behind the curve a little bit. So they did a 50 point cut instead to get back on track. The other thing — and I think this is a bigger reason — there’s a fairly long stretch between this Fed meeting and the next one. There’s two nonfarm payroll reports and a US federal election,” he said.
Mining companies, including those focused on gold, have seen little interest from generalist investors in recent years, who have instead turned to assets like tech stocks and cryptocurrencies like Bitcoin.
With gold now on the rise, many experts in the sector believe equities are undervalued and primed for the return of generalists. The sentiment was on display at the Metals Investor Forum as the presenters indicated that gold’s performance is starting to impact large miners as well as developers and explorers.
Overall, Clark believes juniors meet all three requirements for the “trade of the decade.” He noted that the market has been completely decimated, that there is little investor participation and that it holds mammoth potential.
“Look at the last two years — the volume in the Venture Index has been completely left for dead, nobody is investing. The average right now is 400 million shares traded; the average in 2020 was 3.8 billion. So the volume of the Venture Index would have to go up nine times roughly just to match where it was in 2020,” Clark said.
He suggested that volume is so low that there isn’t really anywhere else the market can go.
With that in mind, Clark thinks the fuse is already lit for the junior sector based on the amount of money that has been moving into gold and has already shifted the fundamentals for producers.
Ultimately, he thinks this will cause a jump in mergers and acquisitions (M&A) of junior companies.
“Why weren’t they doing that? They were growing, preserving, capturing, waiting until there was a sustained rise in the gold price. We now have that, they now have cash. I think M&A is going to pick up,” Clark said.
Coffin was a little more pragmatic in his approach to the juniors, saying it will still be a while before the money moves down from senior producers into smaller companies.
“I’m starting to see it in a few of the developers that I follow, basically the next step on the food chain closer to production. In a couple of cases, there’s been a marked increase in volume over the last week or two,” he said.
While the price of gold is expected to continue gaining for the rest of 2024 and into 2025, there are still opportunities for investors who want to add the precious metal to their portfolio.
The keynote speakers at the Metals Investor Forum were in consensus on which gold stocks will move first, saying senior producers will begin to see more benefits while the price is strong. However, those willing to take on more risk may want to consider looking at gold stocks that have so far continued to lag.
After senior companies, the speakers said investors should look to development companies with late-stage projects nearing the production phase. While these won’t offer as secure of an investment as producers that have steady income streams, they will benefit from having a lower entry point and the possibility of larger gains.
Perhaps the most interesting and risky opportunities may come from the exploration side — in particular, those companies that have a steady stream of good drill results, with a well-defined resource or studies in place that make them more attractive to takeovers from large gold-mining companies.
Overall, the presenters agree that the gold sector seems primed to keep moving.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
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