Gold prices set to fall below US$1,600 in 2023: Macquarie

Macquarie analysts have updated their gold forecasts, following expectations of further rate hikes from the Federal Reserve.

"Our economists now anticipate the Fed to hike by a further 100 bps (previous 25 bps) from present levels, reaching a peak rate range of 5.5% to 5.75%," Macquarie said in a note on Wednesday.

Gold was on a euphoric run from November lows, up 20.3% from trough to peak. But prices didn't stand a chance against hotter-than-expected inflation data and ever-so-hawkish Fedspeak.

"Our economists recently highlighted that the US core PCE price index was 0.6% month-on-month in January, the strongest monthly gain since June," the note said.

"This reinforces the notion that disinflationary trends now appear less produced than previous data had indicated."

"In the short term, the market “voting machine” appear to be impacted by multiple factors, including central bank purchasing, inflation performance, US dollar strength, rate hike expectations, etc."

Less inflation and more hikes

The repricing of peak interest rate expectations has been the driving force behind equity market and gold price weakness. It's also propped up the US dollar, which competes with gold as a safe haven asset.

Source: Macquarie Research

Macquarie also notes how gold continues to trade at a sizable premium to the 10-year TIPS (Treasury Inflation-Protected Securities) implied fair value. As the below chart suggests, the spread between gold and the 10-year TIPS has been widening between August 2022 to date.

Source: Macquarie Research

The headwinds are forecast to drag gold to lows of around US$1,550 by mid 2023.

Source: Macquarie Research

Macquarie's preferred gold miners

ASX-listed gold majors posted mixed results during February reporting season. Macquarie noted a few names including:

• Northern Star Resources (ASX: NST): Net profit and dividend were "solid beats" while net cash was in-line

• Evolution Mining (ASX: EVN): Slight underlying EBITDA beat but net debt was much larger than expected

• Newcrest Mining (ASX: NCM): Net profit and EBITDA was a respective 5% and 13% below expectations

Macquarie prefers Regis Resources (ASX: RRL) and Northern Star for its organic growth options. In Northern Star's half-year results, the company reiterated plans to lift production from 1.6 million ounces to 2.0 million ounces between 2023 and 2025.

Towards the junior end of town, Bellevue Gold (ASX: BGL) and De Grey Mining (ASX: DEG) were highlighted for development potential. Bellevue is on-track to achieve first production in the second half of 2023.