Why Gold

We have maintained an allocation to gold for several years due to its diversification benefits and its role as a ‘safe haven’ asset during periods of market volatility. Historically, gold has provided protection during crises, such as the 2022 Russian invasion of Ukraine and the 2020 COVID-19 lockdowns, when most other asset classes struggled. In both instances, gold appreciated in price while broader markets remained flat or declined. Gold acts as a strategic portfolio diversifier and a reliable store of value when confidence in other assets falter.

Gold’s Performance in Recent Years

Over the past few years, gold has delivered positive returns, driven by heightened volatility, geopolitical risks, and evolving macroeconomic conditions. Central banks’ responses to inflation and growth data have further influenced its price. With ongoing political uncertainty and increased volatility due to lower interest rates and inflation, gold’s safe-haven appeal has remained intact, supporting its continued rise.

The Future of Gold Prices

Despite reaching new highs, we believe gold’s positive momentum can persist. Geopolitical risks remain elevated, reinforcing the need for safe-haven assets in portfolios.

Demand is also a key driver. Central banks have recently increased their gold reserves, diversifying away from US bonds and the dollar. Surveys from the World Gold Council indicate this trend should continue through 2025, further supporting prices.

Investor demand in Asia remains strong, both for jewelry and investment purposes. Amid China’s economic slowdown, many investors are shifting away from property and equities towards gold. This trend extends beyond China, with countries like India also seeing increased gold investments, highlighting a shift in investor sentiment.

Why Invest in Gold Miners?

As well as Gold Bullion ETF investments, we also have an allocation to gold mining equities in our higher-risk portfolios. Gold miners typically exhibit higher beta relative to the gold price, meaning they have the potential to generate higher returns when the gold price rises.

While gold mining stocks do not always move in lockstep with the gold price in the short term, their long-term correlation remains strong. For additional risk, exposure to gold miners may offer greater returns compared to gold bullion ETFs, which track gold prices directly.

Gold Miners’ Recent Performance

Unlike gold bullion, gold mining stocks have lagged in fully reflecting gold’s price increase. This disconnect has been driven by:

1. Gold’s safe-haven appeal overshadowing other assets, including mining stocks, which behaved more like equities during increases in volatility.

2. Rising costs, inflation, and supply chain disruptions impacting mining companies as the global economy reopened post the Covid lockdowns.

Over the past few years, many gold miners have successfully managed these cost pressures, leading to improving margins and stronger earnings prospects. Despite this, their stock prices have yet to fully reflect these improvements, presenting a potential opportunity for investors.

While gold miners have rebounded from recent lows, we expect further gains as they close the performance gap with gold bullion over the coming months and years.

The Outlook for Gold Miners

We remain positive on gold miners over the medium to long term, as they stand to benefit from:

1. Expanding profit margins – Rising gold prices and declining costs should drive earnings growth, ultimately supporting higher share prices.

2. Increased M&A activity – Improved profitability may lead to greater consolidation within the sector which investors typically view as positive catalysts for future earnings and valuation resulting in share price appreciation.

3. A broader shift towards commodities – While technology stocks have dominated investor attention in recent years, renewed interest in commodities could drive inflows into mining equities. Given the sector’s relatively smaller size, even a modest shift in sentiment could have a significant impact.

4. Portfolio diversification trends – Investors are gradually reallocating away from highly valued, growth-focused sectors, toward more undervalued areas, including mining, which should further support the sector.

Conclusion

Gold remains a major asset within our allocation, with just under 5% allocated to both gold bullion ETFs and gold miners/gold & silver mining equities. We maintain an allocation to iShares Physical Gold in our lower-risk portfolios, while in our higher-risk portfolios, where higher beta to the gold price is acceptable, we allocate to Jupiter Gold & Silver and iShares Gold Producers.

The outlook for gold remains strong, supported by positive demand dynamics and persistent geopolitical uncertainty. At the same time, gold mining companies are benefiting from improving profitability as costs decline and a higher gold price leads to increased profit margins.

With these favorable conditions continuing, we believe our allocation to gold and gold miners are well-positioned to generate strong returns moving forward.