By Clothed in geopolitical uncertainty, 2023 has been a bumpy ride for investors.
Central banks began raising interest rates early in 2022 to help get high inflation under control, and these increases continued in 2023 as inflation remained sticky. Coupled with Russia’s prolonged invasion of Ukraine and fresh conflict sparking in the Middle East, market participants have faced a great deal of uncertainty this past year.
This tumult was felt strongly in the gold market, which ebbed and flowed as attention shifted from interest-bearing assets to a desire for safety and back again. However, even with some seesawing, gold enjoyed a more consistent year than it did in 2022, when it tested resistance at US$2,000 per ounce, but also dropped toward the US$1,600 mark.
Read on to learn more about what happened in the gold sector in 2023.
Gold price in Q1
2023 was a less volatile year for gold than 2022, but the yellow metal still experienced some drastic price changes, especially during the first half of the year. Gold started the period in an upward trend at US$1,839, buoyed by a weak US dollar and a 37 basis point drop in the US 10 year Treasury yield. It metal found additional support through central bank purchases, and by the end of January had reached the US$1,950.17 mark.
Gains made through the first month didn’t hold through February, however. The gold price plunged on the US Federal Reserve’s 0.25 percent rate hike on February 1, and continued to retreat as the US economy, the US dollar and Treasury yields all saw gains. The precious metal ultimately fell to a year-to-date low of US$1,809.87 on February 23.
Gold price from January 1, 2023 to December 11, 2023.
Chart via Trading Economics.
A reversal came in early March as a banking crisis suddenly hit in the US, beginning with the collapse of Silicon Valley Bank (NASDAQ:SIVBQ). Much of SVB’s money was in treasury bonds, a riskier asset in a high interest rate environment, and SVB didn’t have the cash on hand to cover increasing cash withdrawals from struggling tech industry clients. As a result, it announced on March 8 that it had sold off some of its securities portfolio at a loss of US$1.8 billion. The move sent its share price plummeting and clients clamoring to withdraw their cash, leading federal regulators to step in.
That same day, Silvergate Bank in California announced it was winding down operations and liquidating assets. This was followed shortly after with news on March 12 that Signature Bank in New York City was also being shuttered. The two banks had become critical financial institutions for cryptocurrency companies, with failed crypto exchange FTX being a major client of Silvergate.
Shockwaves were sent through the global financial system by the failure of the three US banks and contributed to the collapse of Credit Suisse, Switzerland’s second-largest bank, in mid-March. The bank had been plagued by years of mismanagement and scandal.
The banking crisis led the gold price to jump from US$1,814.04 on March 5 to US$1,989.13 by March 15. The quarter closed out with the second of the Fed’s rate hikes on March 22, tacking on another 0.25 percent to raise the rate to 5 to 5.25 percent.
Gold price in Q2
The second quarter was highlighted by a continued lack of confidence in the global banking system causing gold to break above US$2,000 on April 3. Investor fears continued to drive the price of gold to a near-record high of US$2,049.92 on May 3. The high price was kept in check as the Federal Reserve announced its third rate hike of the year, also on May 3, increasing the benchmark rate to 5.25 to 5.5 percent.
The combination of 22 year high interest rates and returning confidence in the banking sector caused investor sentiment for gold to wane in late May and into June as interest-bearing assets of the securities market gained traction.
Gold price in Q3
The third quarter was the quietest period of the year for gold, although major global indices like the Dow, S&P 500, TSX and Nikkei hit year-to-date or near year-to-date highs in the first half of the quarter. The July through September period saw the gold price trend downwards, but the biggest losses came at the end of the period. On September 20, the Fed announced it would hold interest rates at 5.25 to 5.5 percent. Five days later, the price of gold began to plunge, first dropping below US$1,900 and falling further to end the period at US$1,848.63.
Gold price in Q4
With gold continuing to fall to a year-to-date low of US$1,820.01 on October 4, gold appeared to be on track to drop below the US$1,800 mark in the fourth quarter.
However, the October 7 attacks by Hamas on Israel started a new round of violence between Israel and the militant group, sparking investor concern of neighboring Arab states being drawn into the conflict and growing into a regional war.
With the conflict continuing, the price of gold made gains throughout October closing at US$2,007.08 on October 27 and has fluctuated between US$1,930 and the US$2,000 mark through the end of November.
Attacks on cargo ships and a U.S naval vessel spiked investor fears the Israel-Hamas conflict would spill over and become a regional war causing gold to reach a record-high spot price of US$2,152.30 during intraday trading on December 3.
The end of the year also saw investors watching for the Fed’s next move. It was broadly expected by market watchers that the central bank was done with rate hikes, and wouldn’t make another move until it begins to lower rates in the middle of 2024.
However, the Fed is keeping an eye on the economic outlook and has suggested that rate hikes aren’t off the table as it tries to meet its 2 percent inflation target.
Gold supply and demand in 2023
Despite high-interest rates that traditionally work against the price of gold, higher demand from central banks has helped to keep pricing of the yellow metal higher. While supply and demand isn’t usually a primary factor when it comes to the price of gold, 2023 has seen banks purchase nearly 30 percent of total mine production.
After setting a record in 2022 with 1,136 metric tons, central bank buying is on track to set a fresh record in 2023 with 800 metric tons being bought through the end of Q3.
Gold M&A activity in 2023
The gold market went beyond the metal, with 2023 predicted to hit the highest level of mergers and acquisitions of gold mining majors and juniors in a decade. From a jaw-dropping merger to a staggering IPO, here are some of the highlights from gold companies that made the headlines.
Pan American Silver and Agnico Eagle acquire Yamana
Pan American Silver (TSX:PAAS,OTC Pink:PAASF) and Agnico Eagle (TSX:AEM,NYSE:AEM) announced on March 31 that they had finalized the acquisition of Yamana Gold.
Under the terms of the deal Pan American assumed control of Yamana’s Latin American assets, adding to its portfolio the Jacobina mining complex in Brazil, the El Peñón and Minera Florida mines in Chile and the Cerro Moro mine and MARA development project in Argentina.
Meanwhile, Yamana’s Canadian assets were transferred to Agnico Eagle, which consolidates ownership of both the Canadian Malartic mine and the Wasamac project in Quebec, Canada, along with several exploration properties in Ontario and Manitoba.
B2Gold buys Sabina Gold and Silver
April 19 saw B2Gold (TSX:BTO,NYSE American:BTG) complete its US$832 million acquisition of Sabina Gold and Silver. The arrangement gives B2Gold access to the Black River gold district in Nunavut, Canada, which consists of five mineral claims along an 80 kilometer belt, including the fully permitted Goose project.
Calibre Mining proposes merger with Marathon
On November 13, Calibre Mining (TSX:CXB,OTCQX:CXBMF) announced it had entered into an agreement to acquire Marathon Gold (TSX:MOZ). If the deal is approved, the companies will combine to form a mid-tier gold producer focused on operations in the Americas, with an average annual gold production of approximately 500,000 ounces.
Newmont takes over Newcrest in the biggest deal of the year
The biggest deal of the year was the merger of gold mining titans Newmont (TSX:NGT,NYSE:NEM) and Newcrest. It was percolating in the minds of investors since it was first announced on February 5, but it wasn’t finalized until November 6 after shareholders from both companies overwhelmingly voted in favor of the merger.
Huge gold IPO in Indonesia
July 7 brought Indonesia’s biggest initial public offering (IPO) this year and one of the world’s best-performing IPOs in 2023: PT Amman Mineral Internasional (IDX:AMMN). The company raised the equivalent of over US$713 million in its IPO, and shares have since surged 250 percent in value, giving the firm a market cap of US$30 billion on December 11.
Investor takeaway
Banking and geopolitical instability worked against high-interest rates and bond yields to keep the price of gold elevated through much of 2023.
With war still simmering between Russia and Ukraine, and tensions at a boiling point in the Middle East, gold prices may not be quick to retreat from the record US$2,152.30 in 2024. With higher gold pricing to start the year and a stronger economic outlook, it may signal opportunities for investors to return to higher-risk equities of gold producer stocks.
“There are a lot of fantastic companies out there that have really good resources that are selling for a quarter to a fifth of what they would be selling for in, not a euphoric market, but a normalized market,” Brien Lundin said at the New Orleans Investment Conference at the beginning of November.
While stocks, particularly junior ones, will always be a riskier investment than the metal itself, 2024 could present entry points for retail investors looking for increased profits from companies whose bottom lines have benefited from the high price of gold the past few years.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.