Mining CEO: Gold's tailwind is fully in effect, and high prices will continue

Gold and silver, after experiencing significant strength last year, are no longer driven solely by single-source capital inflows. Instead, multiple macroeconomic and industry forces are stacking up, making a reversal in the short term unlikely. High levels of precious metal prices may continue and further transmit to mining M&A, with related stocks potentially having room for a rebound.

On February 3, Mitchell Krebs, CEO of Coeur Mining, stated in an interview with Bloomberg that the rise in gold is “driven by all factors together,” including dollar depreciation, central bank diversification, expectations of future interest rate cuts, debt and deficit pressures, geopolitical uncertainties, and more.

In addition to the macro factors shared above, silver also benefits from strong industrial demand.

At the industry level, Mitchell Krebs believes that a high-price environment will promote more mergers and acquisitions and capital flows into mining stocks. Coeur has already received shareholder approval to acquire New Gold last week, following the completion of the Silvercrest acquisition, positioning the company as a “North American precious metals mining platform.”

He said that as the market gradually recognizes the sustainability of current price levels, transaction activity and demand for allocations in mining stocks are expected to heat up, as mining stocks have not fully reflected the recent rise in gold and silver.

Core Drivers of Gold: Central Bank Diversification and Rate Expectations Resonance

Mitchell Krebs attributes gold’s upward momentum to multiple “tailwinds blowing at the same time.” Among them, central banks diversifying reserves away from U.S. Treasuries and other assets has been one of the key forces supporting gold over the past few years.

He also mentioned that market expectations of lower future interest rates, combined with debt and deficit issues, geopolitical instability, and other macro factors, form the macro foundation for gold demand, making it more like a sustained asset reallocation rather than short-term emotional trading.

Silver as a “Industrial Metal”: Electrification Demand and Supply-Demand Gaps Amplify Volatility

Compared to gold, Mitchell Krebs emphasizes that silver has a greater industrial demand component. He listed that from solar panels at the power generation end, to distribution and end-use applications “with switches,” including circuits, semiconductors, electric vehicles, robotics, data centers, and more, silver benefits from the increased usage driven by the electrification wave.

On the supply side, he states that silver has experienced a supply-demand gap for five consecutive years. Due to its smaller market size compared to gold, he believes that in this supply-demand context, speculative forces are more easily accumulated, which can amplify price volatility.

New Demand Variables: Tether and “Central Bank-like” Buying Narratives

Regarding changes in demand structure, Mitchell Krebs mentioned Bloomberg’s report on Tether, calling it “surprising,” and noted that the company has quietly accumulated a large amount of gold reserves, comparable in scale to some of the world’s major central banks.

He also pointed out that the trend of central banks buying gold has continued for four years and accelerated after Russia’s invasion of Ukraine in 2022, motivated by a desire to diversify away from dependence on the dollar more quickly. He believes this theme has not weakened but is strengthening, with no signs of change in the short term.

Mining Company Strategies: Coeur Bets on North American Assets and “Low-Risk Exposure”

Against the backdrop of rising gold and silver prices, Mitchell Krebs shifts industry focus to how mining companies can convert price dividends into cash flow and scale advantages. He said that Coeur is investing internally through exploration and expansion, while also continuously pursuing acquisitions. Last year, it completed the Silvercrest deal, and last week, shareholders approved the acquisition of New Gold.

He stated that post-merger, Coeur will form a “North American mining platform,” with operations focused on Canada, the U.S., and Mexico. As investors seek exposure to precious metals, the company aims to attract more equity capital by emphasizing “low-risk exposure” and manageable jurisdictional risks.

M&A and Valuation: Expectations of Price Sustainability May Drive Mining Stocks to Rebound

Mitchell Krebs expects that as confidence among companies and investors in the sustainability of current price levels grows, more M&A transactions will occur. He mentioned that there have already been new deal announcements within the industry today, and believes this activity is likely to continue.

At the secondary market level, he judges that the upward movement of gold and silver prices has not yet been fully reflected in mining stocks. As the industry begins to disclose Q4 2023 earnings in the coming weeks, and subsequent quarters potentially show stronger cash flow performance, mining stocks may see a catalyst for re-pricing.

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