Kepler Features Final Commentary: Gold Forecasts

In our 2024 Kepler Features final commentary, we touched on the London Bullion Market Association’s (LBMA) analysts' gold forecasts for 2024. The bullish forecasts even missed by nearly 10% of the average price, and almost 30% off the record high gold spot price of $2,788.54/oz. As can be seen in Figure 1, 2024 represented the most inaccurate forecast year in more than a decade, which highlights just how far the gold price beat expectations.

LMBA released a new forecast for 2025; they recently asked the analysts about their high, low, and average price for gold and other precious metals in 2025.

Notably, you predicted the maximum price for gold at $3,290/oz, while the cost in your opinion will be on average at $2,736.69/oz. And indeed, two months into 2025, we've already seen gold knocking on the door of new all-time highs, and as of this writing, it is flirting with just over $2,950/oz record price.

What Does This Mean for the Gold Miners?

As mentioned above, the ongoing strong gold price is, of course, a huge positive to the underlying producers, as they are able to extract operational leverage, in particular in the junior and mid-cap space to deliver much higher operational cash flows.

In simpler terms, as long as miners are able to keep a lid on costs like their equipment, labour, and maintenance, any further rise in the gold prices flows directly to the bottom line, which is what increases returns.

Proof is in the Pudding

One of our holdings, Emerald Resources, saw its share price jump more than 33% after posting strong operational performance in January, with pre-tax cash flow climbing to US$58.4M, or more than a 50% increase over the previous quarter. Over that same period, the average gold spot price per oz increased only about 7%.

Takeaway

We conclude that the gold mining sector is positioned for sustainable long-term growth. “Well, you know, gold miners have been lagging the gold spot for a long time, and the gold spot price is still trading at record high levels, so essentially that should lead to greater cash flow flowing to the miners,” he said. We expect that as free cash flow levels rise, the sector will see more dividends, more share buybacks, and more M&A.

Golden Prospect Precious Metals: Performance and Outlook

Golden Prospect Precious Metals (LSE: GPM) focuses on investing in gold mining companies, giving investors the chance to tap into the global precious metals market through a UK-based option. This investment offers a higher potential for growth, particularly when gold prices rise. GPPM has historically performed well during times when gold prices spiked, such as during the 2008 Financial Crisis and the COVID pandemic, as you can see in the chart below.

Right now, Golden Prospect Precious Metals is the top performer in the commodities and natural resources sector, with its share price jumping 80.4% in the last 12 months and its net asset value (NAV) increasing by 85.27% (source: Trustnet.com and Golden Prospect Precious Metals). Despite this impressive performance and the general positive trend in the precious metals market, the trust is currently trading at a 23.9% discount, compared to a 17.4% average discount over the past three years. This creates an attractive opportunity for investors to potentially purchase shares at a lower price compared to their underlying value.