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Gold SWOT: Amid Inflation Concerns, Gold Hit Its Lowest Level This Year Last Week

CEO & Chief Investment Officer @ U.S. Global Investors
February 21, 2023

Strengths

  • The best performing precious metal for the week was gold, but still off 1.21%. Barrick Gold’s overall attributable gold reserves increased 10% to 76 million ounces. Operating reserves (excluding the 12 million ounces relating to the Norte Abierto project) increased 12% to 64 million ounces from 57 million ounces at year end.
  • B2Gold announced the acquisition of Sabina Gold & Silver Corp (SBB) in an all-stock transaction. B2Gold expects to issue 0.3867 of a common share of B2Gold for each Sabina common share, representing consideration of C$1.87 (18% premium) for a total value of approximately C$1.1 billion.
  • Superior Gold has begun releasing monthly operational reports with today’s announcement highlighting strong improvement at Plutonic in January. Compared to the fourth quarter 2022 monthly average, Superior achieved a 47% increase in underground production and a 12% reduction in underground costs per ton in the month of January.

Weaknesses

  • The worst performing precious metal for the week was platinum, down 3.32%. Gold erased losses as the dollar weakened after U.S. data highlighted persistent inflation that could push the Federal Reserve to pursue further interest-rate increases in the months ahead, writes Bloomberg. U.S. producer prices rebounded in January more than expected, the article continues, with the index for final demand jumping 0.7% last month.

  • Pan African Resources indicated that the headline earnings per share (EPS) for the period is expected to be between $1.40-1.64 per share versus consensus of $1.71 per share. The lower earnings seem to be primarily driven by lower gold sales and a marginally lower realized gold price. The company has not disclosed costs, which could be potentially higher than consensus.
  • Burkina Faso exercised an option in their mining code to directly purchase 200 kilograms of gold from a mine owned by Endeavour Mining Plc. Endeavour’s share price initially dropped on the news confirming it had sold the gold under contract at current market prices which would equate to about $11.8 million of value in the transaction. Almost the entire western half of Burkina Faso is under militant control, and the government may have had an urgent need for liquidity.

Opportunities

  • Goldman Sachs Group Inc. expects central banks to buy an unprecedented amount of gold in 2023 as some look to diversify their reserves away from the dollar, reports Bloomberg. Jeff Currie noted their target is 1,200 tons for central bank buying, surpassing last year’s purchases. Last year’s purchasers were largely unidentified, but China recently started reporting monthly purchases after a three-year window of silence.
  • JPMorgan is marking its price forecasts to market and embedded the latest JPMorgan base case for falling U.S. real yields and a largely neutral U.S. dollar. The bank has upgraded its 2023 gold and silver price forecasts by around 10%. JPMorgan reaffirms its bullish bias on both metals and now forecasts gold prices will continue to rise over the course of the year to an average $2,045 per ounce in the fourth quarter of 2023, with silver prices rising to an average of $26.6 per ounce.  
  • According to Canaccord, despite the recent pullback following the strong January payrolls data, gold is up 2% year-to-date, and the S&P/TSX Gold Index is up 3%. Under the surface, however, Canaccord sees more robust performance led by the junior producers (+9.7% median) and intermediates (+6.1%) versus the senior producers (+1.5%). The group notes that approximately a third of its coverage universe has posted double-digit gains for the year so far.

Threats

  • The government watchdog for the Democratic Republic of the Congo has called for a major overhaul of the country's $6.2 billion minerals-for-infrastructure deal with China upon finding significant breaches of the 2008 agreement, as reported by Bloomberg. The General Inspectorate of Finance called for the value of the investment in infrastructure to be raised to at least $20 billion, considering the value of the mineral deposits transferred to Chinese ownership. China’s embassy in Congo released a statement saying the claims cannot be considered creditable and have no constructive value.
  • Mark Bristow, CEO of Barrick Gold, opined that inflation is going to be sticking around to hobble the industry for a while longer, as reported by Bloomberg. Rising costs impacted almost every miner that was reported over the past weeks. Bristow did not view the Fed’s actions as sufficient to stop the rise in inflation under current conditions.
  • Newmont Mining’s growth options could get a lot more expensive. The Newcrest Mining Board announced that it has unanimously rejected the Newmont offer (announced on February 6), as it does not represent sufficient value for Newcrest shareholders. The Board has indicated to Newmont that it is prepared to provide access to limited, non-public information on a non-exclusive basis subject to certain conditions, including the signing of an appropriate non-disclosure agreement.

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: [email protected].


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