Gold SWOT: Technical Indicators Show a Bottom May Be in for Gold and Junior Miners

Strengths

• The best performing precious metal for the week was gold, but still off 1.22%. Workers at Mexico’s biggest gold mine agreed to accept Newmont Corp.’s offer, which has kept the Penasquito mine idle for four months. Workers are basically getting an 8% pay raise, according to Bloomberg.
• West African Resources and Orezone Gold say that they intend to enter a memorandum of understanding (MOU) to investigate synergies on their respective mining projects. Orezone’s Bomboré and WAF’s Sanbrado operating centers are located 14 kilometers from each other and currently host some 11 million ounces in gold resources.
• Star Royalties Ltd. entered into a non-binding agreement with Sabre Gold Mines Corp. to restructure the Company's existing gold streaming agreement on the Copperstone Gold Mine. The proposed restructuring will revise the Copperstone gold stream from 6.6% of gold produced with production-based step-downs to a flat 4% of gold produced for the duration of Copperstone’s life-of-mine (“LOM”) and additional consideration of C$4.55 million being paid by Sabre Gold to Star Royalties in a combination of cash and shares. Under the terms of the streaming agreement, Star Royalties will continue to provide a cash payment to Sabre Gold equal to 25% of the spot gold price for each ounce of gold delivered.

Weaknesses

• The worst performing precious metal for the week was palladium, down 7.60%. According to Bank of America, Eldorado Gold reported weak third-quarter production results. While production was up 10% quarter-over-quarter (QoQ), it still missed their expectations by 6%. Additionally, a weaker-than-expected third quarter heightens the need for a very strong fourth quarter: Eldorado will need to increase production another 12% QoQ to simply hit the low end of its 2023 production guidance range. This heightens the risk for a guidance miss, in their view.
• Pan American Silver suspended operations at its La Colorada mine in Mexico due to security concerns. On the morning of October 5, the operation experienced an armed robbery of two trailers of metal concentrates. No injuries occurred as a result of the incident, and the company is working with state and federal authorities on resolving the security issue.
• Anglo American Plc’s De Beers sold a provisional $200 million of rough stones in its eighth sale of 2023, compared with $370 million at the prior sale and $508 million a year earlier.

Opportunities

• According to Stifel, multiple technical indicators are showing a bottom is in or very near for gold and the junior gold equities. The relative strength index (RSI) for gold is currently at 21; this level has only been seen seven times over the past decade. Gold returned 10% on average over the next 78 days each time this indicator hit this level. This implies a gold price of $2,000 per ounce near the end of the year. The ratio of the VanEck Vectors Junior Gold Miners ETF (GDXJ)-to-gold is also near a low only seen 3 other times since 2013 with following rallies averaging a 95% return over the next 78 days.
• Gold Fields, along with its subsidiary companies, for purposes of funding general corporate and working capital requirements of the group, entered
  into a sustainability-linked syndicated revolving credit facility agreement of as much as A$500 million, with a A$100 million accordion option. The facility agreement was concluded with a syndicate of 10 banks, with the Commonwealth Bank of Australia as mandated lead arranger and bookrunner, as well as sustainability coordinator.
• For Fortuna Mines silver production at Yaramoko, the beat was due to higher gold grade (7.72 g/t versus consensus of 5.40 g/t), leading to an upward revision in the mine’s production guidance to 110,000-120,000 ounces (from 92,000 to 102,000 ounces) in 2023.

Threats

• According to Bank of America, platinum and palladium prices are down 15% and 30% year-to-date, respectively. While both have faced headwinds, their paths have also diverged. The palladium price has fallen pretty much in a straight line since it peaked after Russia's invasion of Ukraine. The sharp drop is also because the metal is heavily exposed to demand from internal combustion engine vehicles (ICEVs), which are losing market share. Meanwhile, platinum has stayed within the same range for the past few years as supply uncertainties around South Africa's power situation have been offset by weaker auto-catalyst demand. At the same time, both metals face one big overhang: inventories. All this means that they see no immediate catalyst to change the fundamental outlook of the two metals.
• De Beers CEO states: “De Beers reduced its rough diamond availability… as the industry’s midstream rebalances certain areas of stock accumulation. De Beers will continue to support its Sight holders to help re-establish equilibrium between wholesale supply and demand by providing full flexibility for rough diamond allocations in Sights 9 and 10 of 2023, suspending De Beers Group online rough diamond auctions for the remainder of 2023.”
• According to Canaccord, Orezone gold production of 30,700 ounces was 7% below their estimate of 32,900. The lower production was a result of a grade 6% below their estimate and recovery 2% lower, partially offset by plant throughput 2% above. Management continues to expect to meet the lower end of 2023 gold production guidance of 140,000-155,000 ounces.

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