Chart of the Week: Have you missed the gold train?
Our latest take on the gold rush.
Mentioned: Barrick Mining Corp (B)
This week’s Chart of the Week comes from Morningstar’s market strategist Lochlan Halloway’s analysis on the recent retail gold frenzy.
Despite recent performance, our midcycle assumption for the gold price (which anchors our valuations for gold miners) remains at USD 2,000 an ounce. That is based on our estimate of the long-run marginal cost of production.
Given the metal has run so far and so fast, it appears as though we are making a huge contrarian call. It’s a good reminder of how quickly expectations can shift. When enthusiasm builds this quickly, it pays to revisit what’s come before.
Past lessons
Gold tends to rise when trust in central banks falters. Major peaks in 1980, 2011, and 2020 all followed periods of policy fear and fell when confidence returned.
Today’s prices reflect investor anxiety around monetary “debasement”, but if inflation stays low and debt is managed, the current premium may not hold. History shows that the Fed has mostly kept inflation in check despite political pressure.
We’re not trying to pick the top of the cycle. Nonetheless signals such as the gold/silver ratio and the gold/oil ratio (which have historically been associated with peaking prices) are starting to flash. On the other hand, there are reasons why gold prices might continue to march higher.
For those investors still looking for gold exposure despite our cautious outlook, the table below shows our ratings for domestic and global gold miners.
All are expensive, though there is a spectrum of overvaluation. The least-unreasonably-priced gold miner in our ASX coverage is Newmont, about 40% above fair value. And globally, Barrick is the least expensive, the only two-star-rated gold miner, at a 17% premium
The full analysis is available to Morningstar Investor subscribers and trialists.
You can find previous editions of Chart of the Week here.
