Falling bond yields, fear over the US debt ceiling and an end to the US Federal Reserve’s interest rate tightening cycle have created a “near enough perfect backdrop” for the gold price to forge a record high, according to analysts at Macquarie.
Gold’s melt-up in 2023, which saw the price jump around 10 per cent, was also stoked by the US regional banking crisis that prompted Macquarie to argue the case for the safe-haven asset to test $US2075 an ounce. That was reached at the peak of the pandemic in August 2020 when central banks printed money to fund emergency spending programs.
“We still expect [gold] to test the 2020 nominal high of $US2075 ($3113) and likely break above it, entering uncharted territory,” Macquarie said. “The last time this occurred was in 2020, when the 2011 high of $US1921 was taken out, with prices rallying a further $US154.”
Gold fetched $US2014 an ounce on Monday morning. Its two-day retreat was attributed to Friday’s US data that showed University of Michigan inflation expectations had hit 12-year highs, shaking the market’s confidence that the Fed’s fight against inflation was finished.
The risk to Macquarie’s gold forecast is if the Fed does not deliver the interest rate cuts the market expects over the next 12 months. The gold price traditionally climbs when interest rates and US government bond yields fall because the opportunity cost of holding physical gold declines as it pays no interest.
A stronger greenback also benefits Australia-based gold miners as they sell gold in US dollars, but incur operating costs in Australian dollars. On Friday, the Aussie dollar weakened against the US dollar to buy $US66.5¢, after the University of Michigan inflation data topped expectations.
The ASX’s largest gold miner, Newcrest Mining, added 1.6 per cent to $28.70 on Monday after it accepted Newmont’s $26 billion takeover bid at an implied valuation of $29.70 per share on a 30.4 per cent premium to the price before the deal was announced in February.
But Macquarie’s preferred stock picks among the local gold miners are Northern Star Resources and Regis Resources thanks to the duo’s organic growth opportunities, which offer potential to lift total production.
Macquarie said Regis had received government approvals for its McPhillamys project in NSW, with an anticipated definitive feasibility study for the tenement a key catalyst for the share price. It has a $2.90 valuation on Regis shares and outperform rating, versus the market price of $2.11 on Monday.
The broker also rates Northern Star as a buy, with a $15 share price target, versus Monday’s price of $13.85.
Among the junior producers, Macquarie’s preferred picks are De Grey Mining and Bellevue Gold.
“De Grey released solid infill and extensional results from Mallina’s Toweranna regional deposit as well as positive results from ore sorting test work which, in our view, could lower operating costs for the deposit,” the broker wrote.
Elsewhere in the mining sector, Morgan Stanley’s global commodities team updated its preferred stocks picks for the second quarter of 2023 based on a mixture of qualitative and quantitative criteria.
In the gold space, the broker likes South African giant AngloGold Ashanti and Northern Star. It said the latter had a free cash flow yield estimated at 8.7 per cent in financial 2024, which was among the highest among miners under its coverage.
In the green metals or energy transition space Morgan Stanley rates Canadian copper miner Teck Resources a buy.
The group is a takeover target for Swiss mining giant Glencore amid a flurry of merger and acquisition activity across the green metals sector. This also includes the $US10.6 billion merger between Allkem and Livent and Albemarle’s $5.5 billion takeover offer for Liontown Resources.
Morgan Stanley’s preferred base metal is aluminium after copper prices extended losses in 2023. The broker forecast iron ore prices in 2023 to match those averaged in 2022. It rates aluminium and iron ore giant Rio Tinto a buy, with a $124.50 share price target.