Monday, January 2, 2024
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
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Relative performance. During the fourth quarter, mining companies (as measured by the XME) appreciated 14.0% compared to a gain of 11.2% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were up 15.2% and 17.6%, respectively. Gold, silver, and copper futures prices gained 11.0%, 7.0%, and 4.1%, respectively, while nickel and lead declined 11.2% and 5.5%. Zinc prices were flat. For the full year 2023, all indices were in positive territory, led by the XME which appreciated 20.1%, but underperformed the S&P 500 which gained 24.2%.
Precious metals outlook. Our outlook for precious metals and precious metals mining equities remains favorable. Factors supporting our view include: 1) the Federal Reserve appears to have reached the end of its tightening cycle, 2) heightened geopolitical uncertainty, 3) growth in U.S. deficit spending and national debt, and 4) increasing investments in gold by central banks. Based on these factors, along with the potential for lower interest rates and a weaker dollar, we think portfolio allocations to precious metals could increase. The futures price of gold rose 13.4% in 2023 and closed the year at $2,071.80 per ounce.
Outlook for industrial and battery metals. While slower economic growth could provide a headwind for industrial metals demand and prices, longer-term secular trends such as electrification remain supportive of supply and demand fundamentals for metals such as copper. Although the longer-term outlooks for battery metals such as lithium, nickel, and cobalt are constructive, the near-term outlook remains challenging due to unfavorable supply and demand fundamentals. In 2023, futures prices for battery grade lithium, nickel and cobalt fell 81.4%, 43.6%, and 44.2%, respectively. Lower near-term prices may slow new development making existing projects attractive and better positioned to take advantage of stronger pricing when demand inevitably accelerates.
Putting it all together. We think the precious metals mining sub-sector is poised for outperformance in 2024. While well-diversified portfolios should have exposure to precious metals, mining equities may offer a stronger current alternative to bullion. In our opinion, junior companies remain attractive based on valuation, and we expect industry consolidation to accelerate as senior producers seek to replenish reserves and resources.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87
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