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Speaker 1: Welcome to the Fear and Greed summer series. I'm sure,

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Speaker 1: n Alma, it isn't an overstatement to say twenty twenty

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Speaker 1: five was the year of gold. The price of the

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Speaker 1: precious metal hit record highs stocks followed. But has gold peaked?

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Speaker 1: Have investors missed the boat? Lachlan Halloway is an equity

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Speaker 1: market strategist at morning Star. Lachland, welcome back to Fear

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Speaker 1: and Greed.

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Speaker 2: Thanks for having me.

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Speaker 1: Your long run gold price forecast is two thousand dollars

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Speaker 1: ounce about half where it is.

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Speaker 2: Why Well, as you say it's a long run price forecast,

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Speaker 2: it's based on our long run assumptions forecasts about supply

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Speaker 2: and demand for gold. Demand, well that's you know, gold's

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Speaker 2: industrial uses for there were central bank buying, jewelry demand

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Speaker 2: etf flows are humpsons around that. And on the supply side,

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Speaker 2: it is it is a cost curve gold mining predominantly.

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Speaker 2: So we make us for about those two things, you know,

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Speaker 2: five years into the future that sets our price. Where

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Speaker 2: they to curves intersected. Is not a short run price target.

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Speaker 2: We don't you know where gold is going to be

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Speaker 2: in a week is anybody's guess. But it's our long

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Speaker 2: on evaluation metric that underpins evaluations for our gold miners.

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Speaker 1: Okay, we've had peaks before nine eighty, twenty eleven, twenty twenty,

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Speaker 1: another one in twenty twenty five. What can we learn

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Speaker 1: from those previous cycles about what happens having the next

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Speaker 1: one two three years.

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Speaker 2: Well, Generally gold seems to do very well when investors

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Speaker 2: are uneasy about policy makers, large central banks, fiscal policy

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Speaker 2: and so on. In the seventies it was the ill

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Speaker 2: shocks runaway inflation. In twenty eleven it was euro death

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Speaker 2: and concerns POSTGFC, and the most recent gold price pike

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Speaker 2: before this one sort of post COVID, as we came

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Speaker 2: in a little bit global uncertainty there. It often runs

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Speaker 2: in big run ups during these periods of investor unease,

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Speaker 2: and then when we steady the ship, it generally comes

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Speaker 2: off the boil. So when Vulga got inflation under control,

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Speaker 2: for exam, when QIS started to tighten up in the

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Speaker 2: in the US, and most recently in COVID, when the

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Speaker 2: world said looked fairly rosy there, it came back. This

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Speaker 2: is an immense cycle based on concerns about debasements US

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Speaker 2: fiscal policy. I think it looks like the general pattern

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Speaker 2: of unease, and I would say today, based on our

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Speaker 2: long run forecast for gold, which mentioned earlier, you are

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Speaker 2: paying an awful lot for insurance against geopolitical and economic

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Speaker 2: uncertainty at the moment.

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Speaker 1: So when do you know that gold's topping out? Like

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Speaker 1: what indicators you're watching for? I think you're only not

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Speaker 1: allowed to laugh at me, Lachlan on that one.

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Speaker 2: I just want to make sure that I'm very clear

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Speaker 2: that us calling gold peak today, for example, is not

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Speaker 2: what I'm trying, and we will only know what's peaked

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Speaker 2: in hindsight. I suppose there are a few indicators that

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Speaker 2: people look to for sort of the fundamentals of goal.

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Speaker 2: I suppose in the short term, like the gold oil

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Speaker 2: ratio comparing it to another commodity which has an extent

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Speaker 2: inflation backed into gold silver ratio, maybe even a more

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Speaker 2: pure gauge of inflation, or the debasement insurance side of gold.

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Speaker 2: EATF flows are a big one, because they know it's

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Speaker 2: a market that's heavily influenced by sentiment in contrast to

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Speaker 2: most other commodities with meaningful industrial uses. They've been surging

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Speaker 2: this year and they're very closely correlated with the gold price.

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Speaker 2: Should be no surprise. But just as quickly as that

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Speaker 2: sentiment and that FOMO can see huge inflows into ETFs

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Speaker 2: that try the price, it can equally unwind. So we're

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Speaker 2: seeing all of the sort of contras coal indicators, like

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Speaker 2: there's rising ratios of the commodities and EATF flows this year.

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Speaker 2: That's generally an indicator that we're sort of peak gold

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Speaker 2: peak frenzy. That's not a short term prediction though, it's

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Speaker 2: just a historical observation.

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Speaker 1: Okay, for listen, there's still winning gold mining exposure. There'd

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Speaker 1: be plenty out there. Does anything look undervalued or is

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Speaker 1: it all just fully valued at this point?

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Speaker 2: Yeah, well more than fully valued, I'd say, I think

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Speaker 2: there is a spectrum. Admittedly, you know, Newmont and Australian

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Speaker 2: coverage is the least overpriced of the bunch, you know,

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Speaker 2: I suppose.

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Speaker 1: The least overpriced, yeah, putting it the flowery language, and

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Speaker 1: I would say that in global coverage Barrack probably again

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Speaker 1: they're all over priced.

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Speaker 2: I think the thing to be sort of conscious of,

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Speaker 2: you know, goal is a diversify if you are still

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Speaker 2: looking to it for that purpose, you know, it's not

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Speaker 2: something the great track record. I'd say that you can

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Speaker 2: get diversification in bonds for example. You know, I think

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Speaker 2: of the last fifty years, only two calendar years we've

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Speaker 2: seen equities and bonds for at the same time, So

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Speaker 2: you can get diversification outside gold. I think gold equities

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Speaker 2: have fallen four calendar years, so it's not always a

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Speaker 2: great diverse fire. There are other ways in your portfolio

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Speaker 2: you can get versification if you don't want to dictoe

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Speaker 2: into what we consider to be very expensive gold miners.

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Speaker 1: Lachlan, thank you for talking to Fear and Green summer series.

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Speaker 2: Thank you.

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Speaker 1: That was Lachland Halloway equity market strategy at Morning Star.

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Speaker 1: Fear and Greed is not a financial advice podcast. If

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Speaker 1: you want to invest, we recommend you visit a financial

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Speaker 1: advisor who can tailor investments to your needs. Don't forget

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Speaker 1: to follow on the podcast. New episodes every day during

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Speaker 1: our summer series and regular shows are back from January twelve.

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Speaker 1: I'm Sean Elmer and this is Fear and Greed