As Gold Hits Highs, Miners Step Up
December 11, 2023
Read Time 6 MIN
Monthly gold market and economic insights from Imaru Casanova, Portfolio Manager, featuring her unique views on mining and gold’s portfolio benefits. An expanded PDF version of this commentary, including fund specific information can be downloaded here.
Crossing the threshold
Gold crossed the important $2,000 level and closed November at $2,036.41 per ounce, a gain of $52.53 or 2.65% for the month. It went on to set a new intraday all-time high of $2,135 in overseas trading ahead of the Monday, December 4 U.S. opening, before sliding back down to previous levels.
After underperforming gold significantly in October, gold equities did what we expect them to do in November. The NYSE Arca Gold Miners Index (GDMNTR)1 and the MVIS Global Juniors Gold Miners Index (MVGDXJTR)2 were up 11.3% and 14.7% respectively during the month, narrowing the valuation gap against the metal.
To new highs and beyond (...hopefully)
Gold is being supported by expectations that the U.S. Federal Reserve (Fed) may soon begin cutting rates, with markets implying a more than 50% chance of a rate reduction in March 2024, and a 68% chance of a cut in May 2024. Gold is also likely benefiting from continued safe haven buying as heightened global geopolitical risk persists.
We are positive on the outlook for the gold price in 2024 and beyond. Gold seems to have established strong support at around the $1,900 to $2,000 level. This is especially remarkable when we consider that investment demand, as gauged by the holdings of gold bullion ETFs, has been persistently declining. Daily, markets are trying to decide if a soft landing is still a possibility. We think we may be getting closer to a point where the U.S. and global economy begin to slow down more significantly under the stress imposed by high interest rates, and the strain of not one, but tragically now, two wars. These factors should lead to a drop in corporate earnings followed by a correction in equity markets and a weaker jobs market and higher unemployment rate.
Inflation has eased, but it remains above the Fed’s 2% target, and continues to impact businesses and households. There is risk that bringing inflation back down to 2% could be a long process; historically that has been the case. We believe that when these risks become more apparent to markets and even more likely to generate poor outcomes for the financial system, gold is positioned to benefit. In 2024, we see opportunity for gold to test and break through the all-time highs of $2,075 in 2020 and $2,135 more recently, on December 4.
Perhaps more importantly, we view gold equities as well positioned to benefit from sustained, record high gold prices as investors look for leveraged and diversified exposure to gold.
Gold equities may be the true beneficiaries
We have been calling attention to the low valuation metrics of the gold mining sector at present, both historically for the industry and relative to gold. We contrast depressed market valuations and negative sentiment towards the sector, with gold companies that, as a group, financially and operationally are in good health today. We also have been highlighting the companies’ disciplined approach to growth with a focus on value creation by optimizing their portfolios, reducing costs, increasing mine lives and finding and developing new deposits, all while maximizing returns for stakeholders.
At approximately $1,935 per ounce, the average gold price so far this year is the highest ever annual average. Gold companies on average are producing gold at all-in sustaining costs of approximately $1,300 per ounce. While high inflation definitely hit margins these last couple of years, costs appear to be under control, and gold companies are generating a lot of free cash flow.
Yet, on the whole, they remain disciplined, unwilling to chase production or reserve growth at any cost. Mergers and Acquisition (M&A) activity in the sector remains relatively muted. Instead, much of the more traditional M&A activity has been replaced with creative transactions transforming companies into better businesses. A prime example of this is with AngloGold Ashanti (1.00% of Strategy net assets).
Turning over a new leaf
We recently met with the management of AngloGold Ashanti (AngloGold), one of the largest gold producers in the world. AngloGold produces about 2.5 million ounces of gold annually.* For decades, it has traded at a discount relative to its North American and Australian peers, in great part due to its South African asset base, primary stock listing and domicile, but also due to a large, complex and high-cost portfolio of mines. However, the company has been focused on streamlining its portfolio over the last several years.
In brief:
- 2020:
- Completed the sale of all its remaining South African assets.
- 2022:
- Acquired junior developer Corvus Gold as well as some additional Nevada properties from Coeur Mining to increase its footprint in Nevada and further consolidate the Beatty District.
- Achieved the restart of one its flagship assets, the Obuasi mine in Ghana, marking what is expected to be the beginning of a new era for this Tier 1 asset.†
- 2023:
- Continued its value creation and portfolio optimization journey, announcing the proposed combination of its Iduapriem mine in Ghana with Gold Field’s adjacent Tarkwa mine. [Note: the proposed joint venture is expected to deliver mining and infrastructure synergies across the combined footprint, allowing significant flexibility in mine planning and scale.]
The culmination of AngloGold’s efforts over the last several years was the completion of its corporate restructuring on September 25, 2023, with a primary listing of its ordinary shares on the New York Stock Exchange, and a corporate domicile in the UK. The company, which now has its group headquarters in Denver, retains secondary listings on the Johannesburg and Ghana Stock Exchanges.
Blueprint for success?
Today, we view AngloGold as a transformed, significantly better, lower risk company. The company’s strategy is well articulated by management and is now clear to us that AngloGold has a:
- Healthy balance sheet (low net debt; more than $2 billion in liquidity).
- Asset base made up of five Tier 1 assets, four Tier 2 assets and a growth pipeline supported by projects in the Americas (U.S. and Colombia).
- Successful track record of increasing reserves (up 26% since 2017).
- Commitment to safety, reducing costs and delivering on their promises.
AngloGold is well-positioned to achieve what it has long been working towards in obtaining a market re-rating and closing the historical valuation gap relative to its peers. We believe this type of approach, mirrored by others in the industry, should lead to regained market confidence and interest in the space, as well as improved share price performance for gold mining companies, generally.
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Related Topics
Important Disclosures
* Source: AngloGold Ashanti (https://thevault.exchange/?get_group_doc=143/1701200171-InvestorPresentationNovFINAL.pdf).
† While the ramp up of the “new” Obuasi has by no means been trouble free, it has showcased the companies’ core values, with safety being one of them and always first. Due to poor ground conditions, the company decided to slow down Obuasi’s ramp up, negatively impacting 2023 and 2024 production estimates. The company is trialing a new mining method to address both production/economic and safety concerns. During our recent discussions with CEO Alberto Calderon, he did not hesitate, the company will always put safety ahead of production, he reaffirmed.
All company, sector, and sub-industry weightings as of November 30, 2023, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 2MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.
The Gold Strategy is subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. The strategy’s overall portfolio may decline in value due to developments specific to the gold industry. The strategy investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. The strategy is subject to risks associated with investments in Canadian issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.
666 Third Avenue | New York, NY 10017
Related Funds
Important Disclosures
* Source: AngloGold Ashanti (https://thevault.exchange/?get_group_doc=143/1701200171-InvestorPresentationNovFINAL.pdf).
† While the ramp up of the “new” Obuasi has by no means been trouble free, it has showcased the companies’ core values, with safety being one of them and always first. Due to poor ground conditions, the company decided to slow down Obuasi’s ramp up, negatively impacting 2023 and 2024 production estimates. The company is trialing a new mining method to address both production/economic and safety concerns. During our recent discussions with CEO Alberto Calderon, he did not hesitate, the company will always put safety ahead of production, he reaffirmed.
All company, sector, and sub-industry weightings as of November 30, 2023, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 2MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.
The Gold Strategy is subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. The strategy’s overall portfolio may decline in value due to developments specific to the gold industry. The strategy investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. The strategy is subject to risks associated with investments in Canadian issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.
666 Third Avenue | New York, NY 10017