New Highs Propel Gold into 2024
January 11, 2024
Read Time 4 MIN
Spot gold climbs to a record high in 2023; the main drivers behind last year’s gold rally should continue to support gold in 2024.
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.
Look who’s made new all-time highs…
Some market participants look at closing prices, others prefer to look at intraday prices for more detailed price action. No matter how you slice it, spot gold prices set new highs in 2023. Gold recorded a new intraday, all-time high of $2,135/oz in early December during overseas trading hours. Gold also managed to establish a new at-the-close all-time high of $2,077/oz on December 27, and ended 2023 at $2,063/oz, up 13.1% for the year.
Gold equities ended the year strong as well, outperforming gold bullion in the last two months of the year. However, gold equity has yet to fully close the valuation gap against the metal. In 2023, NYSE Arca Gold Miners Index (GDMNTR)1 and MVIS Global Juniors Gold Miners Index (MVGDXJTR)2 were up 10.60% and 8.59%, respectively, compared to gold’s 13.10% gain.
Recapping key drivers
The main drivers behind gold’s rally to new all-time highs were:
- Heightened global financial risk – gold closed at a yearly low of $1,811/oz at the end of February, bouncing back and trending above $2,000/oz as markets tried to digest the news and assess the ripple effects of the rapid collapse of Silicon Valley Bank and Signature Bank over the course of a weekend in March. Gold found further support as the risks spread to Europe, with major bank Credit Suisse ultimately needing a rescue.
- Record central bank net gold purchases – investment demand, as gauged by the holdings of gold bullion ETFs, persistently declined in the second half of the year. However, this was offset by strong buying from the official sector, with gold purchases from central banks around the world potentially set to beat the record levels reported for 2022. This kept gold well supported above the $1,900/oz level throughout most of the year, leading to highest annual average gold price in record of $1,943/oz in 2023.
- Heightened geopolitical risk globally – most notably, as a result of the ongoing war in Ukraine and the tragic developments in the Middle East in early October. Gold closed at $1,820/oz on October 5, and demonstrated, once again, its historically proven role as a safe haven, climbing above $2,000/oz after Hamas’ attacks on Israel.
- Federal reserve policy – changing expectations around the U.S. Federal Reserve’s (Fed’s) monetary policy path were a major driver of gold prices in 2023. The Fed’s projections for rate cuts in 2024, released at the conclusion of their December 13 Federal Open Market Committee meeting, sent gold prices to record levels at year end.
Gold seems to have established strong support at around the $1,900 to $2,000/oz level, and at present, we see real opportunity for it to test new all-time highs this year. The four main drivers highlighted above should continue to support gold in 2024. More significantly, increasing western investment demand as a result of a rising need to hedge portfolios this year could once again become a dominant and positive driver of gold prices.
Slowing outflows in gold-backed ETFs
Source: World Gold Council. Data as of December 2023.
Making a case for miners
It is important that investors consider not just gold bullion but also gold equities when they look at gold as an asset class. We think gold miners are favorably positioned to benefit from sustained, record-high gold prices as investors seek leveraged, diversified exposure to gold. Gold prices will clearly continue to have a meaningful impact on the performance of the gold equities, with a rising gold price environment providing opportunity for gold equities to outperform the metal.
A declining gold price, in contrast, would typically lead to weak share price performance by the miners relative to gold. We view gold equities, at present, as generally undervalued, trading at low multiples both historically for the industry and relative to gold. We believe this valuation gap provides an opportunity for gold equities to outperform gold even in a sideways gold price environment, especially if that price action develops around the $2,000/oz level.
Industry cost inflation has mostly subsided, and operating costs appear to be contained, with all-in sustaining costs on average at around $1,300/oz. While we reiterate our outlook for higher gold prices in 2024, we want to highlight that at current spot gold prices of around $2,040/oz, gold miners, as a group, should be able to enjoy margin expansion and enhanced free cash flow generation this year.
We expect gold companies to have the ability to produce solid operating and financial results that can withstand the volatility of the gold price and demonstrate that they can sustainably operate profitable businesses throughout the cycles. We believe consistently proving this resilience to the markets should lead to increased incorporation of gold equities as an asset class in the broader investment universe, and lead to a rerating of the gold mining sector.
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Important Disclosures
All company, sector, and sub-industry weightings as of December 31, 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.
Related Funds
Important Disclosures
All company, sector, and sub-industry weightings as of December 31, 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.