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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.
Gold Through It All
It has been a tumultuous past couple of weeks in the markets, not least due to the UK Budget announcement and the US Election. But through it all gold has once again proven its resilience. Since our last commentary note, at the end of September, gold went on to rally further, reaching further all-time highs at the end of October of $2,783/oz representing an increase of nearly 35% since the beginning of the year.
Whilst the gold spot price has cooled off since the US election, which has been driven by higher inflation expectations under President Elect Donald Trump, and thus a reduced number of rate cuts, we are still seeing a price that is up nearly 25% since the beginning of the year, and up almost 30% since the same time last year. Much of this move appears driven by a sharp unwind of long speculative positioning, as signalled by the month-to-date (MTD) reduction in physical gold ETF holdings, whilst the longer-term drivers behind gold, such as Central Bank demand, are likely supported by Trump’s preference for tariffs and trade wars.
Gold price per troy oz
Source: World Gold Council
Gold’s Price Improving Miners’ Margins
We had anticipated that the Q3 reporting season would hold evidence to improved cash flows for the underlying gold mining equities. With inflationary cost pressures continuing to ease, having been a significant headwind for miners in recent years, we are now seeing, as we predicted, further margin improvements in the mining equities in the current Q3 reporting season.
One of our top holdings, Emerald Resources, reported an 8% increase its operating cash flow in its latest quarterly report (vs. Q1 2024). Another holding, West African Resources, in its Q3 2024 results reported an over 20% (vs. Q1 2024) increase in its net cash from mining activities.
This means the sector is now experiencing some of the strongest free cash flow levels on record, which could also lead to an increase in M&A activity, typically resulting in an increase in share price of the gold miners which become the target of acquisitions. We also believe that it should lead to a material re-rating of the miners, which again would cause notable increases in share prices.
How can investors play this?
For investors looking to capitalise on this opportunity, small and mid-cap miners offer the greatest potential upside. These companies are more sensitive to price changes, with smaller increases in the price of gold leading to substantial improvements in their profit margins, like we have just seen in the Q3 2024 reports above. Golden Prospect Precious Metals invests in these companies. Our fund has historically outperformed the gold spot price during periods of gold price rallies, such as during the 2008 Financial Crisis and the COVID pandemic as you can see in the chart below.
Since January 2nd 2024 to the time of writing, Golden Prospect Precious Metals is up over 33.0%, vs. the NYSE Arca Gold Miners Index which is only up 18.4% demonstrating its ability to outperform peers.
Golden prospect precious metals share price
Source: Golden Prospect Precious Metals Fund
