Gold Stocks Offer Compelling Value Amid Looming Recession

• Gold stocks are a conviction trade for 2024 due to the coming recession that will be bullish for gold.
• Bullish on uranium long-term.
• Silver has acted more like a monetary metal recently, after trading more like an industrial metal.
• Tax-loss selling could present opportunities to buy oversold gold & silver stocks this year.

With signs pointing to an impending global recession, including in the United States, investors may want to position their portfolios defensively. Gold stocks look particularly attractive heading into 2024. An economic slowdown will likely prompt the Federal Reserve to reverse course and resume rate cuts. This macroeconomic backdrop should provide a bullish catalyst for gold, causing it to challenge recent all-time highs. With gold stocks languishing near cyclical lows, the sector offers significant gains with relatively low risk.

The Case for Imminent Recession

There are several data points that point to a recession being imminent in the US:

• Leading economic indicators like manufacturing activity and housing starts have been deteriorating for months
• Federal tax revenues are declining rapidly
• Major layoffs have been announced across industries, despite low unemployment rates
• Corporate earnings calls increasingly contain cautious forward guidance, despite better-than-expected Q3 results

Taken together, these signs foreshadow a recession in the next few quarters at most. Mainstream commentators remain in denial, distracted by still-strong consumer spending and labor markets. Both metrics are lagging indicators that will deteriorate last in a downturn.

Once recession can no longer be denied, the Federal Reserve will be forced to reverse policy and resume rate cuts. While others foresee a supportive Fed in 2024 after inflation falls, something will break first, forcing the Fed's hand. With other central banks like the ECB and BOE already pausing rate hikes, the sequence of policy pivots could impact currencies and commodities. If the Fed moves first, it would likely strengthen gold's appeal versus the US dollar. But if Europe cuts rates ahead of the Fed, the dollar could temporarily remain strong, delaying gold's upside.

The Bull Case for Gold

Beyond policy reversal, there are several other factors that support higher gold prices:

• Recession will prompt safe-haven buying of gold as a store of value. Geopolitical tensions exacerbate this.
• Central bank buying has reached record levels as countries diversify away from the US dollar.
• Inflation expectations have stopped falling, reducing real yields.
• The opportunity cost of holding gold is disappearing as yields decline across assets.

These conditions should drive gold to new all-time highs in 2024, likely above $2,150/oz. While the timing and precise price levels always remain uncertain, the macro backdrop clearly points to higher prices.

Gold Mining Stocks Offer Compelling Value

Rather than buying gold bullion itself, purchase undervalued gold mining stocks to maximize returns in a rising gold price environment. With the sector languishing near multi-year lows, many quality miners offer junior-like volatility with senior-like stability. Compelling opportunities include established producers trading at discounts to net asset value, cashed-up developers finishing mine builds, and explorers following a prospect generator model to boost discovery potential.

The key is choosing reliable operators with quality assets and healthy balance sheets. While riskier than senior miners, such stocks can generate outsized returns if gold enters a new bull run. Conduct thorough due diligence, use disciplined position sizing and buy equities with strong fundamentals, ETFs AND Royalty companies. If you don't know how to assess 'strong fundamentals' stick to ETFs and royalties.

First Mining Gold

First Mining Gold is a Canadian gold development company focused on advancing its flagship Springpole Gold Project in Ontario, one of the largest undeveloped gold projects in Canada, and the recently acquired Duparquet Gold Project in Quebec, a top 20 Canadian gold asset. The company also has interests in several partnership assets including the Pickle Crow project in Ontario with Auteco Minerals, the Hope Brook project in Newfoundland with Big Ridge Gold, and is the largest shareholder of TreasuryMetals which is advancing the Goliath Gold Complex in Ontario. First Mining was founded in 2015 by Keith Neumeyer, the founding President and CEO of FirstMajestic Silver Corp.

Karora Resources‍

KaroraResources is a growing gold and nickel producer in Western Australia with its main assets being the Beta Hunt mine, Higginsville operations, and LakewoodMill located near Kalgoorlie. With over 1,900 km of highly prospective land, Karora produced a record 133,836 ounces of gold in 2022 and over 80,000 ounces in the first half of 2023, aiming to reach 170,000-195,000 ounces by 2024. A leader in ESG, Karora achieved carbon neutrality in the past two years. The company believes growing to 200,000 ounces of annual production will re-rate its valuation to the next tier of gold producers, and Karora is debt-free and well-positioned to self-fund growth from operational cash flow.

Treasury Metals‍

TreasuryMetals is a Canadian gold exploration and development company focused on advancing its Goliath Gold Complex in Northwestern Ontario, which contains 2.1 million ounces of measured and indicated resources and 1.3 million ounces of proven and probable reserves. The project benefits from proximity to infrastructure like roads, power, rail, and communities. Treasury also has early-stage exploration projects in Ontario, including Gold Rock and a joint venture at Weebigee-Sandy Lake. The company aims to foster open dialogue with regional communities and Indigenous Nations to create sustainable economic opportunities, safe workplaces, social value, and community well-being.

Elemental Altus Royalties

Elemental Altus Royalties is a rapidly growing gold royalty company providing investors with de-risked, quality investments in top-tier mining companies across four continents. As the only emerging royalty company with material revenue and sustained organic growth, Elemental Altus is backed by the successful Discovery Group and offers a unique combination of innovation, global expertise, and entrepreneurial spirit to conduct complex international transactions in the mining sector.

Vox Royalty

Vox Royalty is a mining royalty company that has rapidly assembled an extensive global portfolio of over 60 precious metal royalties and streams since being founded in 2014, leveraging their disciplined, returns-focused approach and specialized expertise to target only the highest return opportunities. With a technically skilled transactions team and extensive sourcing network, Vox has been highly active in acquiring royalties, announcing over 25 deals since early 2020 alone to build their portfolio across seven mining jurisdictions. Vox remains focused on executing their strategy of identifying and acquiring royalties that will deliver strong returns as they aim to become a leading precious metals royalty company.

Uranium Fundamentals Remain Strong Long-Term

We remain fundamentally bullish on uranium's outlook. Nuclear power's reliability, efficiency, and carbon-free output will drive the installation of new nuclear reactors globally. With mined uranium supply unable to satisfy steadily growing demand, higher prices are needed to incentivize new production.

Uranium has rallied strongly since early 2023 lows, now trading around the $75/lb "incentive price" that supports re-starting idled capacity and developing lower-cost projects. So while additional upside is likely long-term, supply coming online may limit vertical moves in 2024. Take profits on early positions but maintain core holdings to capture future gains.

Geopolitical factors could disrupt this outlook on either side. A nuclear accident would dampen nuclear growth, while banning Russian uranium imports would strain supply. However, these extremes are very unlikely and we expect a steadier tightening of the uranium market over time.

Silver Still Faces Headwinds

Silver has outperformed industrial metals recently, trading more like gold as a monetary asset. However, expect its industrial use to drive relative underperformance if the recession unfolds as expected.

With industrial activity slowing, reduced base metals mining would constrain the silver supply available as a byproduct. However, weak fabrication demand from electronics and solar panel manufacturers will likely dominate pricing. Silver's outlook is sanguine and we project solid returns, but it will lag gold.

Tax-Loss Selling Could Offer Opportunities

Year-end tax-loss selling has likely created bargains in oversold commodities stocks. For gold miners already trading at multi-year lows, indiscriminate tax-related selling provides a chance to buy quality companies at even larger discounts. But acting quickly before upward revisions to consensus earnings estimates provides fundamentals-based support. Conducting due diligence to identify the highest quality names poised to outperform can maximize gains in a bullish scenario.

Gold and gold stocks should outperform, as a recession hits in 2024. While cooling inflation may restrain gains initially, a defensive reversal from the Fed could propel prices higher. So get positioned ahead of the crowd before clear confirmation of recession arrives.