The expectation for peak interest rates and the eventual loosening of Federal Open Market Committee (FOMC) policy sent gold into a rally beginning in October. That rally was fueled by softening inflation data and the Fed's pivot to a less-hawkish stance, resulting in a golden crossover for the market. The golden crossover suggests an increasingly bullish market and rising gold prices, which is great news for precious metal investors and gold miners.
Forecasts for gold in 2024 have it trading 10% to 15% higher than it is now. Risk-averse hedging will support the price in uncertain economic times and, eventually, FOMC interest rate cuts and central bank buying. Central banks have been shoring up their balance sheets with gold for years and are buying in record amounts. The takeaway is that price action is well supported, supporting a robust outlook for the miners.
The miners have a dual tailwind in the form of record-high gold prices and lower oil prices. Energy is the primary input cost after land acquisition and enormously impacts the margin. The average AISC or all-in sustaining cost to produce gold is trending higher at record levels, with oil prices trading near two-year lows. In this environment, the miners should see another record year of margin supported by robust global demand.
A golden crossover in the Van Eck Gold Miners ETF
The Van Eck Gold Miners ETF (NYSEARCA: GDX) is today's leading ETF tracking gold miners. Its top three holdings are the top three miners by market cap and revenue, accounting for 30% of the portfolio. Its chart is equally bullish, showing a golden crossover in the technical indicators confirmed by a solid green candle indicative of market support.
Given the outlook for gold, the crossover is at levels consistent with 2023's lows, so it is a likely launch pad for rising price action. The price action also moves above a critical pivot point linked to highs set before the pandemic, making this a profoundly important move for the gold market.
The Van Eck Gold Miners ETF pays a solid dividend, but the yield is pale compared to payments from individual stocks. The payout is worth about 1.5% and variable on a dollar-per-share basis due to dividend policies within the group. Gold miners tend to pay a base dividend that assumes a minimum AISC and then adds to it on a performance basis. Because the miners are expected to post robust increases in margin and profits in 2024, dividend payouts will also be robust.
Among the attractions for dividend seekers is the annual payout structure. The Van Eck Gold Miners ETF pays its dividend once yearly after its holdings have issued and paid their respective dividends. This makes it an ideal target for dividend harvesting strategies that seek to earn dividend income by holding stocks for the shortest time possible.
These high-yield miners are expected to grow earnings
Newmont Corporation (NYSE: NEM) is the No. 1 holding of GDX. It also pays the highest current yield at 3.9%, followed by Agnico Eagle Mines Ltd (NYSE: AEM) at 2.26%, the third largest holding and Barrick Gold (NYSE: GOLD) at 2.26%, the second largest.
These stocks all have an outlook for growth in 2024, but Newmont’s is the most robust, supported by its recent acquisition of Newcrest. The newly formed company is the largest by market cap, about 50% larger than No. 2 Barrick Gold, and should grow revenue by 50% next year with a similar increase in profits. Because the outlook for gold and oil prices suggests margin strength, the company will likely outperform the expectations. Barrick Gold should grow its top line by 15% and widen its margin; Agnico Eagle is the same but to a lesser degree.
Analysts rate all three gold stocks a "moderate buy" or better, with at least 20% upside for new investors. The consensus price targets have seen some revising during the year; the takeaway is that AEM’s target is rising, Barrick’s is flat, and Newmont’s, which is viewed as 25% undervalued by the consensus, has moved lower, aiding the value opportunity the stock price presents today.
