Gold, Silver, Platinum Group Metals 2019 Metal Price Predictions And Stock Choices

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Includes: BTC-USD, FNV, GFI, RGLD, SAND, SBGL, WPM
by: Lawrence Williams
Summary

Last year with precious metals, apart from palladium, falling short of projected values, our predictions and anticipated stock gains fell well short of expectations.

For 2019, we again anticipate relatively conservative gains in precious metals prices and continuing falls in general equities and bitcoin valuations.

If our predictions are correct, we could see a further recovery in precious metals prices and a sharp upturn in relevant stocks.

We are sticking in our stock recommendations to major precious metals miners and royalty/streaming companies as they are likely to remain comfortably in existence if metal prices move against them again.

I'm having another go at one year predictions for precious metals prices and stock picks for the year ahead after a fairly disastrous similar attempt in 2018. In mitigation, gold, and particularly silver, prices did not perform as expected - indeed turned negative over the year after a promising start and their poor performance, in turn, led to a pretty awful year for precious metals stock prices.

In consolation, I did restrict my stock recommendations to the gold and silver majors and while they virtually all fell, they did not drop nearly as much as most juniors in the precious metals space, some of which are no more - indeed the two biggest gold miners, Barrick (NYSE:GOLD) and Newmont (NYSE:NEM), actually outperformed the general equities markets (just) as represented by the S&P 500 and outside the U.S. the strong dollar meant precious metals and associated stocks did rather better.

To look at my 2018 predictions and comments of a year ago, click on Gold, Silver, Platinum, Palladium - Price And Stock Forecasts/Recommendations For 2018. I hope to do an awful lot better this year!

The strong dollar - which kicked up from April last year - also depressed the gold price which tends to move counter to dollar strength. This adversely affected precious metals stocks which, if anything over-reacted to the downside, which makes them particularly good buys now, assuming the dollar doesn't go on rising which we think is unlikely for the year ahead. Indeed we see the greenback as weakening over the year. We did recommend moving back into investing in the gold majors at the beginning of November (See: Now May Be The Time To Buy Into The Gold Majors) which would have been a good investment move at the time but we still think there is further good upside potential in the current year.

Here follows a table of what actually happened last year in the precious metals markets and with the major global equities markets indexes showing that gold, despite being down on the year, did better than virtually all equities indexes - although this was not really recognized in precious metals stock prices. They did start to pick up a little late in the year, though as equities suffered major reversals. It also shows that the only gainer in the precious metals space last year was palladium due to strong fundamentals (which remain in place).

Table 1. Price and Index Performance 2018

Metal Price or Index Level

Price/Level 1/1/2018

Price/Level 1/1/2019

% Change

Gold (US$)

$1,306

$1,282

-1.8%

Silver (US$)

$17.06

$15.47

-9.3%

Platinum (US$)

$947

$794

-16.2%

Palladium (US$)

$1,087

$1,252

+15.2%

Dow Jones Industrial

24,824

23,327

-6.0%

S&P 500

2,696

2,507

-7.0%

NASDAQ

7,007

6,635

-5.3%

Nikkei

23,506

20,015

-14.9%

DAX

12,871

10,559

-18.0%

FTSE 100

7,648

6,728

-12.0%

Bitcoin

$13,445

$3,717

-72.4%

Source: lawrieongold.com

For 2019, most of our stock picks remain largely unchanged from the poorly performing bunch of a year ago. In principle, most should do well in a better price environment. In our opinion, it was the timing which was awry - not the stock selection in terms of overall corporate strength! We have chosen major producers because even with weak metals prices they won't roll over and die, which has been the fate of some juniors in the space. Most again provide dividend income too.

From last year's listing, we've had to drop Randgold Resources which has been merged into Barrick with something of a reverse management takeover - and Barrick Gold's NYSE ticker has adopted that of Randgold's old NASDAQ one (GOLD) which probably is significant in terms of management change perception. Barrick had been in a declining gold production path as it offloaded non-core businesses and was putting any mega-projects on hold to reduce debt. It had also lost the mantle of world's largest gold mining company in terms of production to rival Newmont Mining. However, the acquisition (merger) with Randgold, which was finalized on January 1st puts it firmly back on top of the gold production pile again.

Randgold was a much tighter ship than Barrick and it is Randgold's management which will be guiding the newly combined company. It has already been making its mark in initiating the slimming down of Barrick's management team and taking a closer look at any potential new projects in the pipeline as we predicted in an earlier article on the merger/acquisition (See: Culture Clash In Barrick/Randgold Merger Could Be Hugely Positive.) It is also moving to resolve the ongoing problems Barrick's big African subsidiary Acacia Mining has been having with its host country, Tanzania's, government. Randgold has an exemplary track record in dealing with African governments and hopefully, a new approach here may transcend the existing deadlock to everyone's advantage.

In applying the Randgold ethos to the very much larger combined company, former Randgold CEO, Mark Bristow, now the new Barrick CEO, has the opportunity to mold the new Barrick company in a much more streamlined image as debt is reduced and underperforming mines are closed or sold. Multi-billion dollar new gold mine developments may well be ignored unless seen as hugely potentially positive and smaller likely profitable operations which meet certain minimum criteria, which might have been ignored by Barrick in the past as too small for consideration, are likely to be considered to maintain the company's long-term gold output. Randgold also used to pay a far higher dividend than Barrick despite its much smaller size and market capitalization and we suspect Bristow will aim to enhance Barrick's dividend yield accordingly. This change in management approach, pushed through and fully supported by Barrick chairman John Thornton, makes Barrick our number one gold mining pick going forwards.

Newmont Mining, the other gold major which also just outperformed the S&P 500 over the full year, has to be another key pick. It briefly topped Barrick as the world No. 1 gold miner during the latter half of 2018 before the former's Randgold acquisition. It has one of the strongest balance sheets among the gold majors and pays a respectable dividend. It still has a considerable debt position which it is battling to reduce, but a strong production pipeline looking ahead. Current guidance is for the production of 4.7 to 5.4 million ounces of gold at all In Sustaining Costs (AISC) of between $870 and $970 an ounce which should keep it comfortably profitable at any likely gold price.

Agnico Eagle (AEM) has been a consistently strong player in the gold major space over the past few years, suggesting strong management, which has to be a bonus. It has a relatively low debt position compared with other gold majors and likely to produce about 1.7 million ounces of gold in 2019 and perhaps 2 million ounces in 2020 at AISC of under $1,000 an ounce. It appears to have a positive production pipeline as it brings its new Nunavut mine on stream in the current year.

Gold Fields (NYSE:GFI) had been one of the best performers in terms of stock price gains in 2017 among the world's top gold producers but came back sharply last year. It spun off most of its big South African mines into what is now Sibanye-Stillwater (NYSE:SBGL) a few years ago but retained South Deep which has enormous gold reserves but has been something of an operational nightmare for Gold Fields and previous owners/operators/developers, and is still hugely underperforming in terms of reaching its production targets. GFI probably wishes in retrospect that it had let South Deep go along with its other South African gold mines but was no doubt seduced by the massive gold resource there. But the company overall is performing pretty well elsewhere, notably in Australia where it has strong production and a good development pipeline including its relatively recently acquired 50% stake in the extremely promising Gruyere project which it is bringing into production in Q2 this year. It also has gold mining operations in Ghana and Peru and currently mines over 2 million ounces of gold annually at an AISC of close to $1,000 an ounce. It is one of the few gold miners which reports the more realistic All in Costs figure in addition to AISC (Q3- $977/ounce), which was heading for $1,140 an ounce - still profitable at current and likely gold prices.

We have dropped Sibanye-Stillwater from our list. We had included it for the likely benefits from a much higher palladium price, but this has been largely offset by ever-ongoing problems at its South African gold and platinum mines. These don't look like going away with militant unions opposed to any plans for workforce reductions to make the mines more profitable.

We have also dropped Freeport McMoRan (NYSE:FCX), primarily a copper miner, from our list of recommendations, but also one of the world's largest gold miners. Copper is not performing well at the moment and with a potential slowdown in China - the world's largest consumer of the metal nowadays - we think it may be better to take stock and see how base metals demand starts to work out before perhaps climbing back in. But if copper and gold both move upwards during the year FCX could be something of a recovery stock.

In primary silver miners, perhaps one should be a little dubious about Hecla (HL) given its poor performance over the past couple of years. It was perhaps my No. 1 pick a year ago, but ended up one of the worst of our stock suggestions in terms of price performance, crippled by a seemingly ever-ongoing bitter strike over operational issues at its Lucky Friday silver mine in Idaho. We chose it last year as we anticipated an end to the strike - but it dragged on. However, we leave it in our listing as perhaps the most speculative of our recommendations this year as a top recovery stock on the assumption that it will settle with the unions and bring the Lucky Friday back into full production. This selection is also backed up by our prediction that silver will outperform gold in 2019. Hecla's other mines (all in the gold and silver space) and its mining pipeline are looking pretty positive and it remains cash flow positive despite the Lucky Friday strike.

We maintain our picks in the royalty/streaming stocks, Franco-Nevada (NYSE:FNV), Royal Gold (NASDAQ:RGLD), Sandstorm Gold (NYSEMKT:SAND), and Wheaton Precious Metals (NYSE:WPM), the last named having particularly strong exposure to silver (it recently changed its name from Silver Wheaton given it has diversified its portfolio and silver is less dominant). They all have an investment pattern which tends to keep them riding high among the precious metals counters.

On precious metals prices, we anticipate gold moving upwards - perhaps ending the year at around $1,400, but this may be as much a function of a further decline in the dollar index - a decline which could be exacerbated if the U.S. Fed fails to reach its earlier projected rate hikes target for the year, which currently seems more than likely. The Fed's recent rate increases have not been uncontested decisions, and if inflation remains below target and the yield curve continues to flatten, suggesting a recession ahead, then the dissenters may be joined by other members of the FOMC when it comes to the planned rate hikes and balance sheet reductions planned for 2019.

The big gold ETF (GLD) is very much a proxy for the gold price and perhaps easier to invest in, but we'd anticipate gold equities comfortably outperforming the ETFs in a rising gold price environment if, as we anticipate, this happens over the year ahead. As we noted above, the majority of our gold stock picks pay dividends too which GLD does not.

Of the other precious metals, we see silver rising to around $20 with the gold:silver ratio coming down to around the 70-mark which, if it comes about, would make silver the best performer among the precious metals this year. Platinum we see as following the gold price upwards ending the year at perhaps around $1,000. We now see palladium holding on to its price advantage over platinum as the supply deficit continues and above-ground stocks continue to be run down. Rhodium we see as following a similar price pattern to palladium also for the same reasons given its main use is alongside palladium in the gasoline engine autocatalyst sector. This demand sector remains strong for the foreseeable future, although weakness in auto sales globally could dent demand a little if this continues with a downturn in the global economy.

TABLE 2: Recommended Precious Metals Stocks and Price Targets for end 2019

Stock, index, and metal

Price December 31, 2018

Predicted Price end 2019

Increase/Decrease (%)

Agnico Eagle Mines (NYSE:AEM)

40.40

$45.00

+11.4%

Barrick Gold (GOLD)

13.54

$20.00

+$47.7%

Newmont Mining (NEM)

34.65

$40.00

+15.4%

Gold Fields (GFI)

3.52

$4.20

+19.3%

Hecla Mining (NYSE:HL)

2.36

$3.10

+31.4%

Franco-Nevada (FNV)

70.17

$85.00

+21.1%

Wheaton Precious Metals (WPM)

19.53

$22.50

+15.2%

Royal Gold (RGLD)

85.65

$95.00

+10.9%

Sandstorm Gold (SAND)

4.61

$5.50

+19.3%

Dollar Index

96.08

94.0

-2.2%

Gold Price

$1,280.20

$1,400

+9.4%

Silver Price

$15.48

$20.00

+29.2%

Platinum price

$794

$1000

+25.9%

Palladium price

$1,252

$1,350

+7.8%

Above is the table of our current precious metals stock picks for 2019 with closing prices for December 31st - and our target prices for end 2019. We're looking at advances in most cases of around 15% plus over the year, but this very much depends on precious metals price performance over the twelve months ahead. We think these stocks will perform positively this year, but we were very wrong last year so we will have to wait and see how things continue to turn out.

We are nervous about palladium long term though as electric cars are likely to eventually oust gasoline ones as the prime choice for new vehicles. However we probably still have a few more years before the growth in demand for electric vehicles puts a major dent in the gasoline-powered automobile market

To really make ourselves hostage to fortune, we've also added in our predictions for the US Dollar Index and our price forecasts for the major precious metals. Well, we can hardly do any worse than some of the hugely qualified economists and analysts out there, a number of whom will have their own price targets for the year ahead published in the annual LBMA precious metals price prediction competition later this month.

Regarding the S&P 500 and Bitcoin - we see these coming off their current values during the year, and the latter could, in our opinion, see yet a further major decline. Bitcoin (BTC-USD) lost over 70% of its value in 2018 and could see a similar fall in the current year - to perhaps under $1,200 from its current level of around $4,000 - as investor sentiment for these cryptocurrencies continues to fall away. If equities and bitcoin continue to slump this year this could be another factor helping divert investment back into precious metals as traditional safe havens which could make our latest stock price predictions conservative.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.