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Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Golden Prospect Precious Metals. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Robert Crayfourd and Keith Watson co-fund managers of Golden Prospect Precious Metals (LSE:GPM), the investment trust investing in smaller cap gold and precious metal mining equities, give their take on gold’s performance in 2024 and what they see for 2025.
2024 was a year which unfolded with a series of high-stakes events and pressing global challenges. From the lurking threat of ongoing global inflation, potential stagflation and perhaps even a recession.
US rate expectations were a material driver of the gold price, when easing inflationary pressures led expectations for rate cuts by the US federal reserve, which helped break gold’s $2,000/oz resistance level in March 2024 and saw it quickly rally to $2,390/oz. This was further supported by China’s economic slow-down, in part due to their ongoing property crisis.
Physical gold exchange-traded funds (ETF’s) returned to net buying in June, whilst central bank demand remained strong following Russia’s ongoing invasion of Ukraine and the subsequent weaponisation of the US dollar. This saw gold repeatedly make new all-time highs, reaching $2,787/oz at the end of October 2024.
The United States election saw Donald Trump elected as the next president on the 5th of November which put a pause to gold’s gains, as it was then viewed his policies may prove more inflationary, which saw a reduction in rate cut expectations, over-riding the impacts of enhanced geopolitical turmoil on the gold price in the short term.
It was sadly a year fraught with international conflict that raged on and challenged geopolitical landscapes and global stability, although the direct impact of these on the gold price was unclear. Inflation, rate expectations and geopolitical uncertainty that drives central bank demand remained more significant drivers of the gold price
Gold exited the year just short of all time highs, with the spot price of gold rosing a whopping 27.2% from 1st January 2024 ($2051.4/oz) to 31st December 2024 ($2609.1/oz)
Forecasts Fell Short, Very Short
As you can see below, when the LBMA asked leading analysts for their predictions for 2024, even the most bullish of them all was off by almost 10% in terms of the average price, and almost 30% from the record high gold spot price of $2,788.54/oz.
gold price predictions
Source: LMBA
This underscores just how outstanding gold’s performance was last year, far exceeding analyst’s predictions.
Two Types of People’s Bank Impact
Evidently there were other drivers of this price asides from wars and the wider economic backdrop, which caused the uncoupling of the traditional interest rate and gold spot price relationship.
Central bank demand remained strong throughout the year, especially from the likes of the People’s Bank of China (PBOC) who sought to diversify away from US treasuries and US economic hegemony and thus stocked up on gold.
As we mentioned, we also saw exchange-traded funds (ETF’s) colloquially termed the “people’s central bank” (not to be confused with the aforementioned PBOC) move from being net-sellers to net-buyers of the gold metal as well, further supporting the price, and as signal from investors that they wanted the metal in their portfolios.
Looking Ahead for Gold and the Miners
As we move into 2025, it is our view that a sustained high gold spot price is here to stay, with likely geopolitical uncertainty under Donald Trump’s presidency potentially adding further upside to the price. For the miners we are already at a very healthy gold price which should lead to continued strong free cash flows. This should lead to improved share price performance, buybacks, dividends and further M&A.
The gold mining sector has lagged the gold spot price through 2024 (the Golden Prospect Precious Metals NAV was up 20.20% vs a 27.0% gold price gain in sterling), in part due to market concerns that cost inflation pressures may squeeze margins. Producer cost pressures appear to be easing, with lower fuel, labour and steel cost inputs, so unlike the post Covid-19 period, these margins should be more sustainable.
Golden Prospect Precious Metals (LSE:GPM) provides investors an opportunity to gain access, through a UK vehicle, to the lagging global precious metals mining equities, and with a greater potential upside to the gold price. GPPM has historically performed well during period of spot gold price rallies such as during the 2008 Financial Crisis and the COVID pandemic as you can see in the chart below.
share price
Source: Golden Prospect Precious Metals