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Investment views

After gold’s recent (Rocky Mountain) high, what next for gold stocks?

23 September 2019
Author: George CheveleyPortfolio Manager

Gold miners have been getting excited about travelling to Denver since 1858 — and our colleague at the recent Denver Gold Forum reports they’re in a buoyant mood now.

But while mining companies are enjoying the increase in cashflows from a higher gold price (gold recently hit a six-year high, but has eased since), the word from Colorado is that they’re not getting carried away.

According to IAM portfolio manager George Cheveley, conference attendees have been at pains to emphasise that they are not changing their spending plans or long-term price assumptions (although some money is being added to exploration budgets to fill longer-term project pipelines).

That sheds useful light on what may come next for gold-related equities.

Gold stocks soared in the first eight months of this year, driven upwards by higher prices for the yellow metal as investors sought havens amid trade tensions, equity market volatility and concern over a global slowdown. However, since the start of this month the gold price has slipped back on indications of modest US expansion and hopes of a trade resolution.

So what next?

As George points out, any further indications of recovering economic growth or a trade agreement will see gold prices fall further. On the other hand, a slowdown or an unexpectedly large interest rate cut by the US Federal Reserve will have the opposite effect.

But either way, George reckons there is longer-term upside potential in gold-related equities. The miners gathering in Denver say they intend to use increased cashflows to reduce debt and pay higher dividends, which should be welcome news for investors. What’s more, the downside for gold prices should be limited as global growth continues to slow and equity market volatility remains elevated.

So the mood in Denver is generally upbeat among both gold miners and investors. But George reports that one group at the Forum isn’t sharing the feel-good vibe: the bankers. While gold-sector M&A talk continues to bubble away, actual deals have so far been fewer than many expected.


Investments carry a risk of capital loss.

George Cheveley
George Cheveley Portfolio Manager

Important information

This content is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contains statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual outcomes may differ materially from those stated herein.

All rights reserved. Issued by Investec Asset Management, September 2019.

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