Will gold’s pillars crumble as the herd stampedes in?
A week or three ago your writer joined the herd trumpeting the virtues of bitcoin and gold, forgetting for a moment that the market noise is loudest before the fall. Need proof? Well, just days after penning the piece, the cryptocurrency had retreated about 14% from its record high, and the precious metal hit a speedbump too, shedding 8.5% from its ‘best ever’ level of USD4380 per ounce.
Yet, the gold bulls are undeterred
At a loose end on what to pen for this opinion piece, and keen to learn more about financial market volatility, your writer spent a few hours trawling his inbox for some asset manager wisdom. It did not take long for the gold bulls to surface. George Cheveley, Global Gold Portfolio Manager at Ninety One, said his interactions with 30 gold companies at this year’s Mining Forum Americas support a positive outlook for listed firms exposed to the commodity. He offered five themes to help spot gold mining opportunities. More on those in a moment.
First, we must figure out whether the current gold price rally has legs. To do that, we need to combine some market history with the economics of supply and demand. The possibility of a 1929-style recession has long served as motivation for individuals to stock up on physical gold and silver. Why? Because when confidence in banks and financial markets weakens, investors look for assets that exist outside the financial system and thus have the potential to retain value in real terms. Gold is seen as protection against economic collapse and currency debasement, offering a tangible store of wealth when paper assets and cash lose reliability.
Central banks on the prowl
However, the real gold underpin comes courtesy the central banks, most notably China, as they bolster reserves amid rising geopolitical risks. At a recent The Times with Allan Gray webinar, a panel of Allan Gray and Orbis equity and fixed income portfolio managers were tasked with assessing financial markets. One of the panellists commented that central banks were stockpiling gold alongside dollars and euros in response to a range of structural risks.
It emerged that China would have to buy total global gold production for years to achieve holdings equivalent to the US. But the challenge facing individual investors seeking listed gold mining exposure is that gold supply and price are just part of the decision. Even experienced asset managers struggle with stock picking and timing. An Orbis fund manager explained that they have had exposure to gold mining stocks for years, often with poor results. “Historically, if the gold price went up one times, gold miners would go up more than that,” he said, but the 2022-2025 rally seems different. And that brings us back to the themes that the Ninety One gold buff mentioned.
Cheveley suggested a number of useful ‘tells’ that you might look for before backing a listed commodity miner. He singled out cash discipline as the first theme, adding that stand-out companies had to prove their ability to convert record margins into higher cashflows. “Inflation has been a challenge for the gold sector since the pandemic, but while cost rises have moderated this year, taxes and royalties have gone up,” he said.
Cash is royalty
The second theme is a focus on cash generation. “Most companies are wary of lowering cut-off grades to extend mine life, as that would increase ‘per unit’ costs,” Cheveley wrote. “Instead, increasing dividends and/or buybacks generally remains the focus, which is positive for shareholder returns.”
Renewed interest from generalist investors is the third theme, and another good sign. The Ninety One gold expert said there were noticeably more generalists at the Mining Forum Americas this year, and that there being more buyers of gold stocks should support prices. Investors must also pay close attention to the fourth and fifth themes when choosing their equity exposure.
“The outlook for gold prices and gold equities appears increasingly positive,” Cheveley concluded. “However, with reserves and M&A potential among the key differentiators between gold miners, a selective approach is strongly advised.” The fourth theme is about gold reserves and profitability, and the trick is to find gold producers with mineable reserves that can be extracted profitably. Investors should favour mining companies that have discovered or acquired mineable gold reserves rather than those that have declining historic reserves.
The fifth theme centres on mergers and acquisitions. Although gold’s price resurgence has made it harder for smaller firms to find the capital to drive M&A, this remains an important way to achieve scale advantages in the sector. Gold mines can merge or acquire to enhance growth prospects, reduce operating costs and improve the bottom line. The focus is back on the handful of gold companies with a market capitalisation of USD15-30 billion that might consider a ‘merger of equals’ approach to unlock shareholder premium.
Shooshing the mental noise
As analysts weigh up production costs and balance sheets, investors face a different challenge entirely. Adriaan Pask, CIO at PSG Wealth, recently penned an article saying that perpetual volatility creates mental noise that can cloud investors’ thinking when it comes to financial markets and interpreting short-term equity returns.
For example, year-to-date to 30 October 2025, local investors have had to process massive gains in both gold and the JSE All-Share Index alongside rising concerns over geopolitics, international trade and the United States’ fiscal debt crisis. “In these instances, having a mental model in place to categorise the long-term risk to your investment portfolio is crucial,” Pask said. One big mistake is to adjust long-term equity portfolios in response to short-term factors such as interest rates and money market returns.
“You need to make sure that you tie the right concern to the right asset class and think about it in the right context,” Pask wrote. “Ultimately, there are only a few drivers in each asset class that materially affect the investment outcome over the right time horizon.” He supported this statement in the context of US jobs growth forecasts. Yes, whether these numbers signal a US recession is an important economic question. However, when you consider that investors are generally encouraged to hold equities for decades, the perspective shifts.
Recessions are not uncommon
“Recessions typically occur every five to seven years and should be expected as part of the normal economic cycle,” Pask explained. “Over the long run, they tend to have minimal impact on the outcome of an equity investment.” Put differently, the long-term annual returns from equity investing dilute the short-term impact of recessions such as those that occurred post-Covid and following the Global Financial Crisis.
If you take one message from today’s collection of investment insights, let it be this: the real risk to your investment portfolio is not recession, but how you react in anticipation of it. Pask concluded that investors who move out of equities into cash “out of fear that a recession is on the way” are more often than not left on the sidelines when that recession fails to materialise.
His closing advice on dealing with market noise is: “With so much happening in markets, investors must separate what truly matters from what may only be important over certain timeframes and less relevant over others.” Perhaps that distinction also applies to gold. The metal’s rally may look like a reaction to short-term uncertainty, but the fiscal debt, inflation and geopolitical challenges that underpin it appear anything but fleeting.
Follow the writer on
LinkedIn: https://www.linkedin.com/in/gareth-stokes-media/
Twitter: @stokesmedia
