Gold will explode higher in 2023 but it's the miners investors should pay attention to - ESGO's Eric Strand
Welcome to Kitco News' 2023 Outlook Series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into a recession to cool down inflation. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2023.
(Kitco News) - Although gold prices are expected to end the year with a slight loss, the precious metal has seen a solid rally, setting itself up for a healthy start to 2023 and one asset management firm sees potential for prices to push back above $2,000 an ounce.
With gold prices hovering around $1,800 an ounce, the precious metal is looking to end 2022 with an 11% rally from last month"s two-year lows. Eric Strand, portfolio manager and creator of the European-listed AuAG ESG Gold Mining exchange-traded fund (LSE: ESGO), said in his 2023 outlook that this could just be the start of a new bull run in gold.
"We anticipate a new all-time high for gold during 2023 and the start of a new secular bull market when the price goes over 2 100 USD per troy ounce," he said in his commentary.
Investor demand for gold has been lackluster through most of 2022 as the Federal Reserve embarked on its most aggressive tightening cycle in 40 years in an effort to cool inflation, which also reached a 40-year high.
However, the gold market has shifted in investor interest as it appears the Federal Reserve"s nearing the end of its aggressive monetary policy stance.
"It is our opinion that central banks will pivot on their rate hikes and become dovish during 2023, which will ignite an explosive move for gold for years to come," he said.
While gold is expected to see an explosive move next year, Strand said the real value will be in the mining sector. Gold"s weak price action this past year as weighed heavily on the mining sector; many analysts have said that sentiment in the mining sector is worst than in the multi-year bear market between 2013 and 2015.
Strand noted that valuations in the mining sector are at a historic low against the S&P 500.
"Gold miners are today historically cheap relative to gold, something that will revert and overshoot in the coming secular gold bull market," said Strand.
He added that it will be difficult for investors to ignore the value being generated in the mining sector.
|Gold could see a difficult start to 2023 but will shine brighter by year-end - analysts|
"Since 2021, companies in the commodity sector have become true cash flow monsters, and the sub-sector with the highest margins has been the producers of precious metals," he said. "Gold miners have a very low correlation with the broad stock market and are becoming more interesting for larger investors looking for possible/alternative return drivers, and that may result in strong capital flows, which will then take equity prices higher."
As to where Strand sees value in the mining sector, he said that he expects junior producers and midcap producers to outperform the mega-cap and senior producers.
He added because of shifting investor focus, companies with strong environmental and social governance policies and solid sustainability credentials will garner a premium in the marketplace.