Author: Lonwabo Maqubela
Gold and Gold equities have enjoyed a buoyant 2025. Such rallies in the past were met with meaningful drawdowns. Will this time be different?
2025 has been Gold’s year so far
Gold has made notable gains this year, with the spot price increasing by 20.6% and gold mining stocks on the JSE (as per the JSE ALSI) returning 73% year-to-date up to 31 May 2025 in South African Rand (ZAR) terms [Figure 1]. Demand for gold has increased over the past year as central banks globally (most notably the People’s Bank of China) have been meaningfully adding to their bullion reserves. However, the demand for gold reached new heights this year as the second Trump presidency has come with elevated uncertainty, causing global investors to flock to the asset. Gold’s safe-haven status, inflation-hedge qualities, as well as portfolio diversification benefits have shone through year to date.
Figure 1: Gold price
Source: FactSet, SBG Securities
Global forces at work: the push and pull in the gold market
It is our view that macro drivers have been pivotal to the increased demand for gold as a safe-haven asset, namely heightened geopolitical tensions and the US’s trade war with China and possibly the EU. Simultaneously, US yields have been low to negative while monetary policy has been accommodative.
Physical drivers also continue to support the gold price. Supply remains flat to declining, although the price is still well above the industry’s cost curve. However, unlike other commodities, above-the ground gold reserves have always provided an additional source of supply that can be delivered into if required to balance the market. Central banks have maintained their position as net buyers despite elevated price levels, and have done so for the last fifteen years, signalling ongoing strategic demand. Strong physical buying from China and India also continues to underpin the market [Figure 2]. Additionally, diversification away from the US dollar remains a structural theme, further reinforcing gold’s appeal.
Figure 2: Global central bank gold purchases, in % of mine production, 1995 – 2024
Source: World Gold Council, Incrementum AG
Physical and market factors have not been alone in driving up the gold price. Speculative interest is notable with net long positions in the derivative markets rising, signalling the positive sentiment currently in play in the gold market [Figure 3]. In the near term, it is this speculative interest that concerns us. Sentiment could change overnight and ultimately impact the physical market, as has occurred during previous drawdowns. Whilst investor demand for gold has increased, the jewellery market which traditionally accounts for 25% of demand, has weakened given the higher prices.
Figure 3: Comex (Futures market) gold weekly positions
Source: Comex
From a long-term perspective (the last 30 years), while gold has underperformed the S&P500, it has outperformed other asset classes [Figure 4]. It does, however, have periods of long-term underperformance – for example, it took a decade between 2011 and 2020 to return to break even in nominal terms after the Global Financial Crisis. Currently investors perceive the structural changes to the global hegemony as the reasons to own gold. We believe that whilst there are structural underpinning drivers, we are currently undergoing a cyclical high in the gold market, as evidenced by the positive sentiment in the derivative market. If the market is right that bond yields must shift higher in response to the systemic risks, that very move will make gold relatively less attractive, recalibrating the gold market.
The gold mining stocks have been a leveraged play on price, with current levels pricing in a spot price above the long-term gold price of $2300 but below the prevailing spot of $3200 [Figure 5].
Figure 4: Gold’s performance versus global equities and government bonds
Source: Bloomberg, data scaled to 100
Figure 5: Gold miners’ performance
Source: Factset
Perpetua's exposure to gold
As at end of April 2025, the Perpetua SCI Equity Fund’s held 10% of fund in gold mining shares versus the Capped SWIX’s weight of 12.5% in the sector, resulting in an active weight of -2.7%. The Fund’s exposure comprises AngloGold (6.7% vs the Capped SWIX’s weight of 4.0%) and Goldfields (3.1% vs the Capped SWIX’s 5.6%). It is important to note that although we are underweight gold the index at present; the current weight of gold in the index is high vs the last 30 years, and significantly higher than where is was just 10 years ago.
Figure 6: JSE gold index weight in All Share Index
Source: FactSet, IRESS, SBG Securities analysis. Note: JSE Gold index proxy used from March 2021
Since the Fund’s inception, we have been partial to gold and to being overweight gold counters. AngloGold features among the funds top five contributors to the Fund’s since inception in September 2014 relative performance . We have in recent years updated our assessment of the long-term normalised gold price to reflect rising inflation and higher levels of global debt. In terms of our fundamental analysis, AngloGold and Gold Fields are currently pricing in gold price in the mid $2000s, well below the prevailing spot price of $3300. This supports our view that these two stocks are not overvalued. However, we hold a different view in respect of Harmony. Harmony’s current share price is discounting a gold price above $3000 – which is a level we view as unsustainable in the medium to long term. As such, as fundamentally driven investors, we do not own Harmony in our domestic focused equity portfolios.
Our current gold positioning reflects a deliberate and balanced view of the market, but if the momentum rally continues without any assessment of a commensurate change in long-term fundamentals, we will actively trim our exposure and rotate into sectors offering better relative value. At these elevated levels, we believe gold demands caution. History shows that chasing gold price rallies often ends in sharp corrections – gold equities have typically fallen as much as 30–40% during past drawdowns. While we recognise the long-term structural case for gold, the short-term price is being driven by investor sentiment, marked by waves of fear-driven buying followed by periods of disinterest. This behavioural dynamic reinforces our view that the gold price path will be volatile, not linear, and that disciplined investing is critical.