By Imaru Casanova
Deputy Portfolio Manager, Gold and Precious Metals
VanEck’s Ima Casanova joins Bloomberg to discuss the outlook for gold and the reasons why the asset class may be poised for a rebound in 2023.
Inflation Has Soared but Gold Hasn’t Delivered…Why?
Gold is considered a store of value and a safe haven asset, and when investors are worried about the purchasing power of their money, they often turn to gold as a way to protect their wealth. However, in 2022, gold’s traditionally positive performance in an inflationary and rising rate environment has been hindered by the strength of the U.S. dollar, which reached 20-year highs during the year. In addition, gold was caught up in a broader commodities selloff as China’s worsening COVID outbreak threatened to weaken demand for basic materials (2:50).
Is Gold Poised for a Rebound in 2023?
There are a number of catalysts that may enable gold to break out of its narrow trend. As we look ahead to 2023, the Fed has the challenging task of trying to combat inflation without causing a hard economic landing. As the odds of a recession increase, gold will likely benefit as investors flock to safe-haven assets. In addition, geopolitical risk is elevated across the globe, setting the stage for unexpected volatility that may also drive a flight to quality (1:13).
What Companies are Best Positioned for 2023 and Beyond?
If a gold catalyst emerges in 2023, gold stocks stand to gain from oversold levels. One simple way of looking at gold stock valuations is to divide the equities by the gold price. From this perspective, junior gold miners’ gold price ratios are now at the same levels as the pandemic crash (6:13).
In the current environment, many junior gold miners have attractive projects that are being advanced towards production. However, for these companies to be successful, they must raise their profile and a sure way to do that, in our view, is through consolidation.
We know of junior companies in the same district that would achieve synergies and scale by combining to form larger multi-million ounce resources. Companies across a region could merge multiple properties that create a path to an emerging mid-tier producer. Such opportunities can be found in the Great Basin (Nevada/Idaho/Utah), British Columbia, Quebec, Guyana, Brazil and Western Australia. The potential advantages of scale includes:
- Broader investor base
- Increased trading liquidity
- Inclusion in exchange-traded funds
- Diversified asset base
- Increased news flow
- Easier/cheaper access to capital
- Cost reductions by eliminating corporate redundancies
- Ability to attract talent and skills needed to design, develop, and operate mines
Watch the full video here: Bloomberg – Gold Stocks Are Trading at Historically Low Valuations.
Originally published by VanEck on 23 December 2022.
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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.
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