Gold and silver prices started to perform much better in March 2024 (continuing into April). Sentiment towards the sector as concerns about rising global debt levels, and the cost to service this debt, is starting to take centre stage.
Heightening geopolitical tensions in the Middle East and Eastern Europe is also fuelling demand for gold as a safe haven.
He adds that silver continues to look particularly interesting, with more than 14 per cent of silver demand now directly attributable to the high growth photovoltaic cell market for solar energy panels.
“The silver market has been in a supply deficit for the past three years with the deficit expected to widen significantly in the coming years,” says Lequime.
Lequime sees real value in gold and silver equities, which have lagged spot prices. He says valuation multiples hit record lows in February after the sharp sell-off, and remain near record lows in spite of the recent recovery in stock prices. He also expects a pick up in merger and acquisition activity in 2024, which should also support prices.
George Cheveley, manager of the Ninety One Global Gold fund, agrees that precious metal equities look attractively valued given the strength of the gold price. They have been held back by worries over cost pressures for mining companies, but these have ebbed as inflation has dipped.
He says: “With gold in uncharted territory, it is harder to forecast where prices could go; however, on the downside, the old record of $2,075/oz should provide a strong floor.
"If that is correct and gold is in a new range, then equity valuations look compelling as cash flows appear set to jump after the latest rises. In a rising price environment, the companies tend to outperform."
He adds they are seeing a number of companies with good growth, which should also lower production costs per ounce: “Improving costs and increased M&A activity should result in the equities of gold companies outperforming a rising gold price overall.
"We are encouraged by performance [in March], which is more line with a typical reaction to a strong move in gold – that is, typically two to three times the move in gold prices.”
Ned Naylor-Leyland, manager on the Jupiter Gold & Silver fund, goes one step further, saying that gold’s recent move signals a fundamental shift in risk perception.
He adds: “The actions of creditor central banks, the growing concerns about fiat currencies, and the unique characteristics of gold all point to a looming paradigm shift in the way financial markets perceive and value monetary risk-free assets.
