Broker Canaccord is upbeat on gold and gold stocks for 2023 on the back of a rollercoaster 2022 as inflation and the US economy now cools and the Federal Reserve may pause its rate-hiking run.
Last year, a hawkish Fed helped the US dollar soar to 20-year highs, which did not aid the gold price, which tends to move inversely to the greenback.
But lately, the dollar has eased, peaking in late September and then dropping around 10% since then, sparking a 17% rebound in the gold price and a 40% move in the S&P/TSX Gold index, noted Canaccord analysts.
"We think gold and gold equities have more room to run ahead of a potential Fed pause and with a non-trivial chance of a recession emerging," they added.
READ: Gold producers to feel cost pressures on balance sheet ahead of 3Q earnings, but relief ahead as inflation slows
The analysts have taken a look at the yellow metal's performance during historical US dollar corrections and during US recessions and said they found that, unsurprisingly, this has largely been positive for gold.
Looking at the producers the broker covers, Canaccord said it was expecting to see a rebound in all-in-sustaining-costs (AISC) margins for miners in 2023 on stronger gold prices and abating inflation.
"For 2023, we forecast an average AISC of $1,265/oz, down modestly (-2% y/y). Anecdotally, most producers indicate that input cost inflation appears to have peaked around Q3 of last year, with most prices plateauing or, in some cases, falling," wrote analysts.
Overall, the gold price last year averaged US$1,802 per ounce in 2022, a new annual record, just edging ahead of the 2021 record of US$1,799 per ounce.
"Based on our 2023 gold price assumption of $1,862/oz (spot currently trading at $1,920/oz), we forecast AISC margins improving 17% to $597/oz in 2023," said the analysts.
They added their new long term gold price assumption was US$2,048 per ounce (US$1,922/oz previously), while the "silver price deck" had increased around 17% on average with a new long-term silver price of US$26.97 per ounce (from US$23.00 per ounce previously).
On average, the broker's target prices have increased around 5% among the royalty companies, 10% among the senior producers and over 20% among the intermediate/junior producers.
Canaccord's top picks among senior producers are Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) (Buy, C$43 target) and Kinross Gold Corporation (TSX:K) (Buy, C$8.50 target).
Within the intermediate and junior producer group, the broker chooses Fortuna Silver Mines Inc (TSX:FVI) (Buy, C$6.75 target) and Orezone Gold Corp (TSX:ORE) (Buy, C$3 target).
Its pick among explorers and developers is Probe Gold Inc (Speculative Buy, C$2.75) while in the royalty and streaming sector, analysts choose Wheaton Precious Metals Corp (LSE:WPM, TSX:WPM, NYSE:WPM) (Buy, C$70) and Osisko Gold Royalties (TSX:OR) (Buy, C$23).
Contact the writer at giles@proactiveinvestors.com