In the fourth quarter (Q4) of 2022, macroeconomic indicators hinted that gold could soon be in the limelight. However, it’s happening sooner than expected. The yellow metal gained momentum in March 2023, as the banking crisis squashed broader markets. So far this month, gold has gained 10%, while the TSX Composite Index and the S&P 500 have lost 3% each.
Will gold and TSX gold miner stocks keep up the momentum?
Gold is long perceived as a safe haven. The recent gain in the bullion amid the market rout indicates that market participants are readying for more impending uncertainties. Gold has notably outperformed in volatile markets in the past. This time as well, if the pain in the banking sector amplifies, investors could dump risky assets like equities and take shelter in relatively safer assets, such as gold.
TSX gold miner stocks were also some of the beneficiaries recently. As they show a positive correlation with the yellow metal, Canadian miner stocks like Barrick Gold (TSX: ABX) and B2Gold (TSX: BTO) have gained 10% each in March 2023. Apart from correlation, if gold continues to trade higher, miners could see steeper revenue growth and margin expansion in their upcoming quarters.
Last year was quite appalling for gold miners, as the metal trended lower amid rising interest rates and a strong U.S. dollar.
Interest rates and gold
As interest rates rise, Treasury yields also increase, making gold a relatively unattractive investment. The U.S. Treasuries are perceived as some of the safest investments. Amid rising yields, their risk/reward proposition becomes all the more appealing to investors. So, gold and related assets lost their sheen and underperformed broader markets.
However, what brings gold bulls back this time is the hope that the Fed might slow down soon. Market participants expect that the central bank could go easy with further rate hikes and will likely pause earlier than expected. Higher interest rates have done damage to weaker financial institutions, leading to the recent banking crisis. Even though the target inflation range is still way below the current data, the Fed might prefer to go slow.
If the view indeed materializes, the yellow metal could continue the momentum. The “risk-off” approach could drive investors to sit with the traditional safe haven.
TSX gold miner stocks in 2023
World’s second-biggest gold miner, Barrick Gold stock, has disappointed investors in the long term. It has returned a mere 15% in the last three years and 45% in the last five years. While higher expected gold prices might help miners’ earnings in the next few quarters, higher operating costs will likely play a spoilsport. Higher inflation could hurt margins, potentially offsetting the impact of higher gold prices.
Peer B2Gold is a mid-cap miner with operations primarily in West Africa. It has returned 3% in the last three years and 50% in the last five years. Notably, its production has increased in the last decade, and so have its earnings. BTO stock looks relatively cheaper compared to peer TSX gold miner stocks on a valuation front. It also offers a stable dividend yield of 3% — much higher than peers.
Conclusion
Note that gold seems to be just getting started. Macroeconomic woes will likely fuel volatility in the markets, pushing investors to defensives like gold. TSX gold miners will likely see a similar momentum, making up for last year’s underperformance.
