AXMIN Inc (TSXV: AXM)
AXMIN Inc. (TSXV:AXM) is a Canadian-based exploration and development company with a strong focus on central and West Africa.
In 2023, against the backdrop of economic uncertainty and escalating tensions in the Middle East, the price of gold reached a historic high. However, while the price of gold remained hovering above $2000 per ounce, the prices of many gold stocks did not show an increase. The disconnect between gold and gold stock prices has become very apparent.
However, the mismatch in the trends of gold and gold stock prices is not a new phenomenon. It has been ongoing for 11 years, but has become more pronounced in the past two years.
Regarding the reasons, Adrian Day, the President of Adrian Day Asset Management, explained that central banks worldwide and affluent families in the Middle East and Asia have started to buy large amounts of gold for insurance purposes. In his view, their motivation for buying gold is long-term and defensive, so they choose to buy gold instead of gold stocks. From this perspective, it is unpleasant to say that the price of gold stocks is matched with economic reality, while the price of gold should be lower, and it is only due to the forcible increase in holdings by central banks that it has been pushed higher.
In his view, for the gold price to surge to $2100 and successfully stabilize, the real support can only come from the Fed’s interest rate cuts and positive monetary factors. Only then will investors become interested in gold stocks.
Specifically for gold stocks, Day stated that they either do not rise, or once they do, they will not leave investors with time to get on board. The logic behind this is that gold stocks have always been severely undervalued, and now more so. For example, the price-to-cash flow ratio of the large gold producer Agnico Eagle Mines Ltd (TSX:AEM) (NYSE:AEM) has fallen to its lowest level since the last quarter of 2015, when the price of gold fell to a minimum of $1061. History repeatedly tells us that gold stocks can remain dormant for a long time, but once they take off, not only do they rise quickly, but they also rise high.
Ross Beaty, Chairman of Equinox Gold Corp. (TSX:EQX) (NYSE:EQX), expressed similar views.
According to his analysis, in 2023, smart money sold gold stocks because they believed that the gold price would collapse. But while the price of gold stocks was pushed down, the price of gold was rising. In Beaty’s decades-long career, he has never seen this kind of situation, so he believes that there is a necessity for the market to experience a rebound.
Looking ahead to the gold stocks in 2024, Beaty’s judgment is that it is inevitable for gold stocks to rebound, but he cannot determine when the rebound will happen or how strong it will be. Therefore, for the first time in five years, he has started to buy gold stocks and advises other investors not to take profits immediately, stating that this realignment will bring double the return.
As for how to choose the best gold stocks, his selection criteria include having large-scale resources that are certain and free of fatal flaws, a successful management team, and financing channels. He is not too concerned about jurisdictional risk but instead believes in scale and volume. For example, Beaty’s own company Equinox Gold produced 564,500 ounces of gold in 2023, and the production in 2024 will exceed 600,000 ounces, with the ultimate goal being to become a senior producer with an annual production of over 1 million ounces.
