Gold's Role in Mining Portfolio Strategy

The Use of Physical Gold in Treasury Management: Weighing the Pros and Cons With gold prices recently surpassing $2,500 per ounce, the role of gold in treasury management has become a topic of renewed interest. This surge is driven by various factors, including increased central bank purchases, geopolitical tensions, and shifts in interest rate policies. As regulations like Basel III now allow banks to hold physical gold in their liquidity buffers, it is essential to consider both the advantages and challenges of integrating gold into treasury strategies. Pros of Using Gold in Treasury Management: - Stability in Volatile Markets: Gold has long been viewed as a safe-haven asset, particularly during times of economic or geopolitical instability. Its inclusion in liquidity buffers can provide a hedge against market downturns and currency fluctuations, offering stability in a treasury portfolio. - Regulatory Recognition: Under Basel III regulations, physical gold is now classified as a Tier 1 asset, which means it is recognised as a high-quality liquid asset (HQLA) on par with cash and government bonds. This reclassification allows banks to use gold to meet liquidity coverage ratio (LCR) requirements, enhancing their ability to manage liquidity effectively. - Diversification: Gold offers a diversification benefit in a treasury portfolio. It is not directly correlated with other financial assets like stocks or bonds, which means it can reduce overall portfolio risk. This is particularly valuable in an environment where traditional asset classes may be more volatile. Cons of Using Gold in Treasury Management: - Limited Income Generation: Unlike bonds or other interest-bearing assets, gold does not generate income. This can be a drawback for treasury managers seeking to maximise returns on their liquidity holdings. Holding gold as a reserve means forgoing the potential interest income that could be earned on other liquid assets. - Storage and Security Costs: Physical gold requires secure storage, which can be costly. Banks need to invest in secure vaults and insurance, adding to the operational costs of holding gold. These costs must be weighed against the benefits of including gold in liquidity buffers. - Market Liquidity: While gold is a globally traded commodity, the market for physical gold can be less liquid compared to other assets, especially during times of financial stress. This could pose challenges if a bank needs to liquidate its gold holdings quickly to meet sudden liquidity demands. In conclusion, while gold offers significant benefits as a stable and recognised asset under new regulatory frameworks, it also presents challenges that treasury professionals must carefully consider. The decision to include gold in a treasury portfolio should be based on a comprehensive analysis of these pros and cons, ensuring that it aligns with the institution’s overall risk management and liquidity strategies.

A project’s economic merits and risk exposure are impacted by the uncertainty characteristics of its primary and secondary metals.  However, these characteristics are not recognized in the static cash flow models commonly used in the mining industry.  The differences between gold and copper price uncertainty are particularly significant when assessing cash flow and return risk.  Gold prices behave like an investment asset in financial markets, while copper prices are driven by global economic activity.  The result is that gold price uncertainty grows the further into the future its price is estimated, while long-term copper price uncertainty stabilizes due to copper prices fluctuating around a long-term equilibrium level. I have been preparing case studies for my upcoming Dynamic Cash Flow and Real Options course at the Colorado School of Mines based on NI43-101 reports from the last several years.  The projects are a mix of gold, copper-gold, and copper projects at the PEA through PFS stages.  The case studies highlighted the need to characterize metal price behaviour when assessing risk and return and the potential variation of capital investment efficiency. The left graphic plots annualized life-of-mine (LOM) return versus risk for each project.  It suggests that gold projects have higher annualized LOM returns (9.8% vs 5.7%) and much higher risk levels (39.5% vs 13.3%) on average than copper projects.  Copper-gold projects fall somewhere in between based on the relative mix of copper and gold revenues.  The right graphic displays Return On Capital Employed (ROCE) versus risk.  It suggests that copper projects have a lower ROCE on average than gold projects, but once again, they also have much lower risk. These behavioural differences provide investors with investment choices linked to risk and return.  Invest in gold projects and possibly earn a higher but riskier return over a shorter time horizon (average LOM of 14 years).  Invest in copper projects and possibly earn a lower but more stable return over a more extended period (average LOM of 31 years). You can learn more about modelling metal price uncertainty and how this analysis was done on the professional development course “An Integrated Valuation and Risk Modelling Approach to Dynamic DCF and Real Options” that I am running at the Colorado School of Mines from October 22 to 24, 2025.  Course details can be found at: https://lnkd.in/gfaajqyG #Mining #Valuation #RiskManagement #Corporate #DynamicCashFlow #RealOptions #Portfolios #Copper #CopperGold #Gold #SCMDecisions

Should You Buy the Asset or its Producer? Are you better off allocating to Gold or Gold Miners? Bitcoin or BTC Miners? SPX or Brokerage Firm? Generally, it is a win-win, however on the margin, and performance is measured in relative value, one is better off in the asset than the producer. Yes, I would rather own gold or BTC than their miners, despite strong performance by the miners, as the 3 charts below demonstrate. When you buy the physical your exposure is directly tied to its price, including ETF of physical. The miners add an additional layer of risk and are often not long significant quantities of the physical in deliverable form. While the miners’ stock is impacted by the price of the physical, it is also impacted by management of the company and its decisions, labor costs, CapEx, production costs, regulatory risks, its capital structure, and debt costs to finance its operation, and operating costs and profit margins. Net-net, the physical commodity usually has less risk because of the additional consideration of the company’s operations and its equity risk. Look no further than Lehman Brothers and Bear Steans, two proud companies that failed (2009) v. the performance of S&P 500. Likewise, many Bitcoin miners collapsed during the dark white crypto winter just 2+ years ago and many more would’ve if not for the pivot to AI compute, or the gold miners that must contend with strikes and geopolitical risks. When you own the commodity, there isn’t operational risk. When capital allocators consider their portfolio mix and real assets including commodities it’s an interesting conversation for your investment team to ponder. Long term wealth creation can be captured by buying the equity of the producer, however, in select cases the physical asset has performed better over the long run for assets such as gold, BTC and SPX. Oil, industrial metals, food commodities which have a seemingly endless supply and are produced in large quantities globally - the result is the opposite since the companies most often outperform the physical commodity given supply dynamics for the commodity. As a creditor, we are active in financing strong low-cost producers, yet we pay close attention in underwriting a commodity producer to the commodity bear case scenario to ensure the company can withstand trough prices. Commodities are inherently volatile, and while there are times to be constructive, as a creditor we always focus on protecting the downside. Huge CapEx to build a mine or plant can take years with cost over runs and uncertain sales projections, as well as transportation costs to deliver the commodity to its distributor. My preference is always to see it operational before providing financing. Project finance is too often mis-priced relative to risk. The price for Gold & BTC is up significantly in the past 2+ years. Meanwhile the miners are relatively flat, as is the Commodity Index (CRB), including metals, food, lumber, and the oil/gas/energy complex.

Gold just crossed $5,000/oz — and it's not even February yet. The Economist explores what's driving this historic rally in their latest piece "What is driving gold's relentless rally?" — and the answer might surprise traditional investors. The key insight: Gold isn't just a crisis hedge anymore. It's becoming a core portfolio asset. Three forces at play: 1. The "debasement trade" — Investors are moving away from government bonds and dollars amid concerns about fiscal policy, #geopolitics, and institutional stability. Gold rose 0.6% on days when the S&P 500 dropped more than 1%, but also climbed 0.2% when stocks surged. 2. Central bank demand — Emerging market central banks, particularly #China, continue stockpiling physical gold as geopolitical #insurance. 3. A new wave of institutional investors — This is the game-changer. Gold ETFs now hold over 4,000 tons worth $650bn, with holdings growing 25% in 2025. Asian investors are leading the charge, with holdings in Asia-based ETFs tripling in two years. Perhaps most telling: Value Partners co-founder Cheah Cheng Hye increased his personal gold allocation from 15% to 25% of his wealth. #India's National Pension System and Chinese insurers are opening the door to institutional allocations. According to MSCI Inc. analysis, investors could have boosted returns by 4 percentage points last year by moving half their bonds into gold — with minimal added volatility. Goldman Sachs estimates that Americans hold just 0.17% of their stock and bond wealth in gold. Each 0.01-percentage-point increase drives gold prices up 1.4%. The smart money may be warming up to an ancient asset after all. Full article: The Economist | Finance & economics section #Gold #Investing #PortfolioManagement #Finance #AssetAllocation https://lnkd.in/geQQ6U3b

Rick Rule explains that the recent surge in gold and silver reflects long delayed price action driven by years of currency debasement rather than sudden new fundamentals. He notes that metals often lead first, with mining equities following later, but that this cycle moved unusually fast as speculative junior stocks ran ahead of the seniors. Rule describes how he reduced risk by selling most of his physical silver after exceeding his original investment target and reallocating into higher quality mining equities and energy assets while continuing to hold physical gold as a long term savings vehicle. He emphasizes the importance of disciplined investing through written buy and sell templates, arguing that selling into favor is psychologically harder but essential to preserving gains in a bull market. Throughout the discussion, Rule stresses that the easiest money is made by buying assets that are hated, maintaining emotional discipline, and tailoring decisions to one’s own experience and risk tolerance rather than following headlines or generalized narratives. YouTube: https://lnkd.in/gRsMQma9 Soundcloud: https://lnkd.in/g_ZRDRM3

A diversified portfolio with gold has quietly outperformed one without since 2009. Following gold’s rally this year, I compared a traditional 60/40 portfolio (stocks/bonds) with one that allocated 20% of bonds to gold - a 60/20/20 mix. Despite no dividends and higher holding costs, the gold-inclusive portfolio still came out ahead. Why? Because diversification isn’t about predicting outcomes, it’s about protecting against the ones you can’t predict. No one saw inflation spiking post-COVID. No one expected rates to stay depressed for over a decade after the financial crisis. Portfolio construction is an art that blends hindsight and foresight. A 20% gold allocation isn’t right for everyone, but a disciplined allocation to real assets, those that preserve purchasing power when markets or currencies move, remains essential for long-term investors. #investing #markets #stocks

Gold Above $3,500: A Price Surge or a Confidence Crash? Gold breaking past the $3,500 per ounce mark isn't just a historic record — it’s a mirror reflecting deep global uncertainty. What we’re witnessing isn’t merely a price spike; it’s a complex signal of systemic stress within the global financial order. 1. The Macro Context -Escalating geopolitical tensions (Middle East, Taiwan Strait, Ukraine) are pushing investors toward safe-haven assets. -Global slowdown concerns persist — manufacturing indices in China and Europe are flashing red. -Markets are pricing in a possible Fed pivot from tightening to easing, especially following Donald Trump's public criticism of Jerome Powell. 2. Monetary & Financial Shifts -Falling U.S. real yields (inflation-adjusted bond returns) are driving gold higher — the inverse relationship holds strong. -A weakening U.S. Dollar Index (DXY) makes gold cheaper for non-dollar investors, boosting demand. -Gold's 30% year-to-date performance outpaces most equity benchmarks — prompting a rethinking of portfolio allocations. 3. Market Behavior -Sovereign wealth funds and hedge funds are increasing gold exposure as a hedge against market and banking system risks. -This isn’t just speculative frenzy — it's structural: a long-term asset reallocation trend is unfolding. -China and India ramped up their gold purchases in Q1, signaling a shift in reserve asset strategies. 4. Accounting & Financial Impact - The price surge reignites conversations around gold hedging in multinational firms. -From an accounting lens, companies holding gold may now see asset revaluations that enhance balance sheet strength. -Gold’s role as a collateral asset in institutional finance is under fresh scrutiny. Strategic Insight: Gold isn’t rising alone. It’s riding on the shoulders of investor fear, policy fatigue, and cracks in the financial architecture. Are we transitioning toward a multipolar financial system where the definition of a "safe haven" is being rewritten? Gold today might not just be a "safe asset" — it could be a vote of no confidence in the current monetary regime. #Gold #CentralBanks #FederalReserve #Commodities #RiskManagement

Gold isn’t just a metal. It’s a macro signal. Here’s where global gold actually went in 2025 and why it matters more than ever. 📦 Total Supply • Mine production: 3,598 tonnes • Recycled gold: 1,404 tonnes Recycling now contributes nearly 28% of total supply, showing how high prices are pulling secondary supply back into the market. 📊 Global Demand Breakdown 🥇 43.5% Investment – 2,175 tonnes The largest demand category. • Physical bars & coins: 1,374 tonnes • ETFs & paper gold: 801 tonnes Gold is increasingly treated as a financial asset, not just a commodity. With persistent geopolitical tensions, elevated global debt levels, and currency volatility, investors are rotating toward hard assets. 💍 32.7% Jewellery – 1,638 tonnes Despite high prices, jewellery demand remains resilient, especially in India and China. Cultural buying, weddings, and long-term savings behavior continue to anchor demand. 🏦 17.2% Central Banks – 863 tonnes Central banks remain aggressive net buyers. Why? • Diversifying away from USD reserves • Hedging against sanctions risk • Building monetary credibility • Preparing for multi-polar currency systems Central bank gold buying has been at historically strong levels over the past few years, reinforcing gold’s role as a strategic reserve asset. ⚙ 6.6% Technology – 325 tonnes Used in electronics, semiconductors, and high-precision industrial applications due to conductivity and corrosion resistance. AI infrastructure and advanced hardware demand support this segment. Why This Is Happening Now • Global interest rates remain structurally higher than the 2010s • Sovereign debt levels are elevated across major economies • Geopolitical fragmentation is accelerating • Emerging markets are strengthening balance sheets • Retail investors are hedging inflation and currency risks Gold sits at the intersection of monetary policy, geopolitics, and investor psychology. It’s not just about price appreciation. It’s about trust in systems. When central banks accumulate nearly 900 tonnes in a year, it sends a signal. The real question is: Are we entering a long-term structural allocation shift toward hard assets? Follow Anirban Majee #Gold #Commodities #CentralBanks #MacroEconomics #InflationHedge #Investing #WealthPreservation #FinancialMarkets #WorldGoldCouncil #AssetAllocation #GlobalEconomy #PreciousMetals #Geopolitics #ETF #SafeHaven

Investing with a multi-strat framework goes beyond just what you invest in; it emphasizes how you allocate and adapt. Our primary focus is on Adaptive Risk Parity, especially regarding commodities. We continuously evaluate new strategies to distinguish true systematic edge from replicable beta. Our findings indicate that adaptive risk parity allocation to commodities serves as a powerful differentiator. Key insights from our approach include: 1.) Risk Parity vs. Capital Allocation: We strive for equal risk contribution rather than merely equal capital. This often necessitates nuanced weighting, particularly for assets like bonds and commodities. 2.) Adaptive Edge: Our strategy incorporates momentum, trends, and vital economic indicators such as inflation and growth to dynamically signal optimal allocations. 3.) Optimizing for Inflation & Yield: We focus on inflation sensitivity and rolling yield, targeting an 8-12% return. Our approach consistently outperforms passive ETFs by generating returns from trend appreciation, roll yield, and T-bill collateral. 4.) The Power of Quality Score: Our quality score is a core differentiator, evaluating a commodity's beta to CPI and its roll optimization (capturing backwardation while avoiding contango) to determine its weight. For instance, crude oil performs well here, while natural gas is often sidelined due to poor roll yields. 5.) Gold as a De-basement Hedge: We adjust gold allocation based on scarcity versus debasement regimes, utilizing metrics such as the dollar index, real interest rates, and M2 money supply. This strategy is not a traditional growth strategy but rather a robust alternative beta and critical inflation hedge. It aims to outperform treasuries and mitigate equity market losses, all while maintaining low execution costs and high transparency. In the challenging environments of 2022 and 2023, this strategy has demonstrated significant outperformance against the Bloomberg commodity index, driven by optimized roll yield, inflation response, and strategic gold timing.

Gold miners not more than just a quick trade? 🏇 Bloomberg with an update on the gold mining sector that appeals to my contrarian instincts. Could this time 🕰️ be different? (Famous last words! ☺️) Here’s a summary of the article: Investors are pulling out of gold miner ETFs, suggesting fading enthusiasm for the sector—even as gold prices remain high. Gold-mining stocks have outperformed both gold itself and the broader market this year. The VanEck Gold Miners ETF, the largest in the sector, is up 57% year-to-date, compared to gold’s 24% rise and the S&P 500’s more modest gains. Despite that, investors have been steadily withdrawing funds from the ETF in every month of the year except May. The Sprott Gold Miners ETF also experienced outflows in May, even as gold reached record highs. “People are selling their shares of gold-mining ETFs into the rally,” said John Ciampaglia, CFA, FCSI, CEO at Sprott Asset Management. “We’re not seeing new money coming into the sector.” Several factors are contributing to the outflows. Past overspending by mining companies has made investors cautious, even though some firms have improved financial discipline. Greg Taylor, CIO at PenderFund Capital Management, said the sector is still seen more as a short-term trading opportunity than a long-term investment. The recent surge in mining stocks may also be prompting traders to seek better returns elsewhere—such as in tech and cryptocurrency. The Nasdaq 100 Index is up 10% since late April, slightly outpacing the VanEck ETF’s 8.4% rise in the same period. In a May 29 note, Bank of America Securities recommended investing in oil 🛢️over gold 🥇, citing relative valuations. Still, advocates for gold-mining stocks argue the sector remains undervalued. Rising gold prices have boosted miners’ profits, yet valuations are low. For instance, Newmont Corporation, the largest miner by market cap, trades at 13x forward earnings—below its five-year average of 20. Scotiabank's Ovais Habib noted that gold miners are being valued as if gold were $1,454 per ounce, far below the spot price of $3,380. Lower energy costs, including cheaper oil and diesel, could also enhance miners’ profitability by improving cash flow, according to Brooke Thackray of Global X ETFs. Additionally, ongoing gold purchases by central banks may continue to support gold prices and mining shares. Goldman Sachs estimates central banks are buying 80 metric tons of gold monthly, with central banks and sovereign wealth funds collectively acquiring 1,000 tons annually—about a quarter of yearly global production. “They’ve been in the market and they’re really price-indiscriminate,” Thackray said. (+++Opinions are my own. Not investment advice. Do your own research.+++) Enjoying my posts? Tap the 🔔 next to my photo and set it to 'All' and you'll be notified when I post. 💸