Undervalued miners could outshine gold in 2024 - VanEck's Casanova

(Kitco News) - Gold's recent all-time highs above $2,150 an ounce are expected to bring new attention to the mining sector in 2024, according to one portfolio manager.

In her latest commentary, Imaru Casanova, Portfolio Manager of VanEck's Gold and Precious Metals Fund, said that while gold is in a good position to hit a new record high next year, precious metal miners could be the biggest winners in the new year.

"We believe Gold equities will benefit from sustained, record-high gold prices as investors look for leveraged and diversified exposure to gold," she said.

Casanova's bullish outlook on the miners comes as the sector continues to struggle with historically low valuations. The TSX Venture Index ($JX) is trading near its lows for the year at 521 points, and is down 8% so far this year. At the same time, while outperforming the junior space, the NYSE Arca Gold BUGS Index ($HUI) is currently trading at 219.82 points, down 4% on the year.

Analysts have said that gold miners have struggled this year as gold prices have been fairly range-bound due to the Federal Reserve's aggressive rate hikes; however, markets are now expecting the U.S. central bank to start easing interest rates in the first half of 2024.

As rate cuts are expected to provide further support for gold, Casanova said that investors might not be able to ignore the value in the mining sector much longer.

"We have been calling attention to the low valuation metrics of the gold mining sector at present, both historically for the industry and relative to gold. We contrast depressed market valuations and negative sentiment towards the sector, with gold companies that, as a group, financially and operationally are in good health today," she wrote in her report. "At approximately $1,935 per ounce, the average gold price so far this year is the highest ever annual average. Gold companies, on average are producing gold at all-in sustaining costs of approximately $1,300 per ounce. While high inflation definitely hit margins these last couple of years, costs appear to be under control, and gold companies are generating a lot of free cash flow."

As for gold prices, Casanova expects they will get a boost as the Federal Reserve to lower interest rates as the economy begins to slow.

"We think we may be getting closer to a point where the U.S. and global economy begin to slow down more significantly under the stress imposed by high interest rates, and the strain of not one, but tragically now, two wars," she said. "These factors should lead to a drop in corporate earnings followed by a correction in equity markets and a weaker jobs market and higher unemployment rate."

"We believe that when these risks become more apparent to markets and even more likely to generate poor outcomes for the financial system, gold is positioned to benefit," Casanova said. "In 2024, we see an opportunity for gold to test and break through the all-time highs of $2,075 in 2020 and $2,135 more recently."