Baker Steel’s David Baker discusses the extraordinary recent run in the gold price and what it means for gold-mining equities.
The gold price recently tipped over $3,000 (£2,317) an ounce, following a strong run since late-2023. Partly, this is down to investors searching for safe-haven assets in a world that is becoming rather more complex but, as David Baker, managing partner at Baker Steel and manager of the Baker Steel Gold and Precious Metals fund, explains, there are other important reasons – particularly, central bank buying.
“When the US placed sanctions on Russia, it changed the perception of the US dollar,” he tells Cherry Reynard in the above podcast. “A lot of the other central banks recognised they should not rely on always being friends with the US. They started to look for an independent asset – and that asset has been gold.”
Donald Trump’s election as US president has accelerated this mistrust, while the resulting tariffs have seen the repatriation of gold back to the States. There has also been discussion over whether US gold reserves could be revalued to allow more borrowing. As Baker says: “It is a fascinating market – and with Trump in that market, anything can happen.”
We are in a strange market at the moment because the gold price is going up and the gold shares aren’t outperforming. We think that is coming, however – gold companies are in fantastic shape.”
Looking ahead, of course, the key question for investors is, Can it keep rolling? For Baker, there are certainly encouraging signs. “Looking at the gold price as a percentage of the S&P500, in 2000, gold was trading at 20% of the value of the index,” he notes. “Then it rallied, outperformed the S&P and peaked in 2011 at 1.6x the value of the index. Then for 10 or 12 years, until quite recently, it has been underperforming. Now we are at around 50%. We see capital rotation out of stockmarkets and into gold.”
Baker goes on to argue there are “real opportunities” in gold equities, which have lagged the rally in the gold price. “We are in a strange market at the moment,” he adds, “because the gold price is going up and the gold shares aren’t outperforming. We think that is coming, however – gold companies are in fantastic shape. We are starting to see margins improving, good dividends and companies buying back shares.”
After offering the example of Mexican business Fresnillo, which has just declared a 6% dividend and a programme of share buybacks, he concludes: “Gold equities is a very exciting story. These shares are cheap and there are going to be plenty of buyers.”
You can listen to the whole episode by clicking on the picture above, while the timecodes for individual questions are:
00.00: Introduction
00.27: What has been driving the gold price higher?
06.55: Are you surprised this has happened at the same time as the US dollar has been relatively strong and real yields relatively high?
08.32: Is the gold price’s current strength sustainable?
10.42: What would be the ‘normal’ relationship between the gold price and gold-related equities?
13.25: ‘Fresnillo case study’
16.38: Is this primarily a large-cap story or are you also investing further down the capitalisation scale?
20:35: Have you started seeing evidence of capital rotation into the asset class?
