Valuing gold equities using the gold futures curve implies considerably greater upside to gold mining stock prices (as compared to the gold price forecasts used by gold mining equities analysts)

Key points

• The futures curve forecasts the price of gold bullion to appreciate while gold equities analysts forecast the gold price to fall and continue falling.
• An average of equity analyst forecasts for 2025 was 9% below the current spot price and the year-to-date price for gold.
• Looking forward 3-5-years, the spread widens with the average forecast by gold equities analysts nearly 20% below the futures curve.
• We conclude that the experts being relied upon to forecast company financials and value stocks are materially under estimating present and future revenue, earnings and cashflow of these companies.
• We should be paying attention to the gold futures curve (not the forecasts of equity brokers) given it has nearly 70 times the daily value traded compared to gold equities.

Summary

One of the key fundamental variables driving the performance of gold mining equities is a company’s operating profit margin, which typically expands (and contracts) by roughly double the movement in the gold price. Gold miners are therefore described as ‘leveraged’ to the gold price.

It is noteworthy that in recent years, gold mining stocks have not been exhibiting this characteristic relationship to the gold price. For example, during 2024, the gold price strengthened by 26.7%, whereas the index of gold mining stocks only appreciated by 9.2%. Going further back to the peak of the last gold cycle in August 2011, the gold bullion price has appreciated 49.6% while the gold miners index has actually declined 40.4%.

We believe one of the factors contributing to gold mining stocks not behaving in the way we would expect is the apparent divergent forecasts for the gold price between gold bullion traders and gold mining equities analysts.

We compared the futures curve for gold bullion to a survey of the gold price assumptions used to value gold mining equities by five prominent local and international investment banks.

We observed that traders of gold bullion forecast the gold price (the futures curve) to appreciate while gold equities analysts forecast the gold price to fall and continue falling. The average equity analyst forecast for 2025 was 9% below the spot and year-to-date price for gold. Looking forward 3-5-years, the spread widens with the average forecast by gold equities analysts nearly 20% below the futures curve.

We conclude that the experts being relied upon to forecast company financials and value stocks are materially under estimating present and future revenue, earnings and cashflow of these companies.

Who should we listen to?

We reflect that gold bullion is one of the most traded assets in the world with an average of over US$200 billion traded on a daily basis (more than US Treasuries and slightly less than the S&P 500) which dwarfs the daily liquidity in gold mining equities at approximately US$3 billion per day. This suggests that we should be paying attention to the futures curve and not the forecasts of equity brokers.

We believe this is likely to have been a contributing factor to gold mining equities underperforming gold bullion in recent years. At the present time, gold mining equities are not reflecting the expansion of their profit margins or the outlook for the gold price according to the futures curve, which implies material upside to present stock prices. We see this as a temporary issue and positive catalyst for gold mining equities as this situation unwinds, driven by the increasing attention gold and gold mining equities are receiving.