Gold price forecast to reach US$3250 by end of year

The gold price could climb to US$3250 an ounce by the end of 2025 as central banks continue to stockpile the precious metal as a hedge against geopolitical risk, according to VanEck's portfolio manager for gold and precious metals Imaru Casanova. 

The metal traditionally viewed as a hedge against inflation and barometer of uncertainty has soared 43% over the past 12 months to fetch US$2915 an ounce on Thursday. 

Earlier this year, spot gold hit a record high of US$2956.37 an ounce in a move that extends a bull run fuelled by the pandemic-era government policies of printing money to fund increased spending.

"If there's trouble in the US or global economy, people turn to gold as it's a hedge against inflation," said Ms Casanova. "It's also insurance for your portfolio, as a diversifier, or a place to hide when there's uncertainty.

"In the last couple of years another driver has entered the gold price, central banks have been strong net buyers of gold, what's new is how much the buying has increased starting in 2022 post the Russian invasion of Ukraine."

In total, global central banks bought around 1000 tonnes a year of gold between 2022 and 2024 with the likes of China, Turkey, Poland and India among the biggest buyers. This compares to average total purchases around 500 tonnes a year prior to 2022 and Russia's invasion of Ukraine, Ms Casanova said.   

Gold miners look cheap

The laggards of gold's record-breaking bull run have been the miners of the physical metal as a number of factors - including rising operating costs - hurt their share price performance.  

According to Casanova, the underperformance of the miners mean exchange traded funds (ETFs) that own a basket of miners now look cheap on an average profit multiple basis, with potential to earn income as the miners may pay dividends, unlike physical gold. 

"As gold price rises we expect gold stocks to outperform the gold price," said Casanova. The VanEck Gold Miners ETF owns 57 different gold miners that boast minimum market caps of $750 million and includes famous names such as Newmont (ASX: NEM), Agnico Eagle, Evolution Mining (ASX: EVN) and Chinese giant Zijin Mining. 

Casanova said the operating cost inflation many miners have worn since the pandemic is more than offset by the rise in the gold price. 

According to VanEck, the average all in sustaining costs for the gold miners to produce an ounce of gold has gone from a past five-year average of US$1156 an ounce to an estimated US$1457 an ounce in the final quarter of 2024.

However, the average gold price has gone from a past five-year average of US$1747 to US$2661 to mean the average profit margin on each ounce of gold mined has grown from US$591 to US$1204. 

"[Gold] stocks are cheap, they're undervalued historically compared to the metal, so fundamentals look healthy and a rising price should support a re-rating of gold equities from here," said Casanova. 

The VanEck Gold Miners ETF returned 59.8% over the 12 months to February 28.

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