Edmund Shing:

Hello and welcome to a new weekly podcast from BNP Paribas Wealth Management. I am Edmund Shing, Global Chief Investment Officer. Today I am joined by my good colleague from Belgium, Philippe Gijsels. Hello, Philippe.

Philippe Gijsels:

Hello, Edmund.

Edmund Shing:

Indeed, the subject of this particular podcast is gold.

Now, clearly, gold generally has been a very good performer. We know it's risen over 100% since the beginning of January 2025, so just over a year and a quarter. Clearly, we have seen a lot of market volatility recently, due most notably to the Middle East conflict so through the month of March. Of course, we've seen a sharp rise as a result of the conflict in both oil and gas prices, due to the effective closure of marine traffic through the Strait of Hormuz, which may or may not be reopening at the moment, let's see. Still a very fluid situation.

Nevertheless, what we have seen so far at least is a modest correction in risk assets, including stocks. As an example, the MSCI World Index in euros is down 4% since the beginning of March. Not even a 10% correction yet. Now we're here to talk about gold. So what is surprising, perhaps, is that gold, which is generally seen as a safe-haven asset, along with other assets such as the Swiss franc, has not thus far acted accordingly.

Since the beginning of March, we've seen a 17% drop in the price of gold in dollars. We have gone from 5,400 to about 4,400 dollars an ounce. So clearly, Philippe, there are some questions. We've had a lot of questions from clients every day. And I was in Zurich yesterday, and I was asked this question by a client: “Why has gold gone down when we've had geopolitical volatility going up, which should generally be good for safe-haven assets such as gold? It worked for the Swiss franc. Why has it not worked for gold up to now”?

Philippe Gijsels:

Well, absolutely the same over here. We get the same question. Also, we get indeed  “Gold should be a hedge against inflation. Inflation is going up. It's not moving. It should be a hedge against all kinds of troubles in the world, like wars”. We have that unfortunately. So why is not going up? Well, I think there are a number of reasons. Maybe the most important one, I think, seen over the last couple of weeks is that interest rates have gone up.

So at the short end, central banks are getting a little bit more hawkish. Also, the long end has been creeping up. We are not too far from the 4.50% on the 10-year US, and in the world, interest rates are like gravity. So if gravity becomes stronger when it pulls harder,  well, all kinds of real assets, including gold and precious metals, other commodities as well, are pulled down. So that's one thing.

The second thing you mentioned already, of course, is that the dollar is rising, and typically commodities, also gold, do not like a rising dollar. So that's an issue. The third reason I would say, and this is more or less technical, when risks increase in the market, volatility goes higher, markets go a bit “risk-off”, people start to reduce positions and they start to sell things, and it's sometimes easier to sell things when you have a very nice profit, like gold. So I think that gold has dragged a little bit into the selling pressure of other things without a reason. So I think that's the reason why I think that gold is, at first sight, reacting a little bit atypically in this kind of environment.

Edmund Shing:

Okay, so a bit of profit-taking in the short term, which, as you said, is natural as people want to retreat to some form of higher liquidity, like cash or even short-term bonds, given the higher yields. Secondly, you mentioned the stronger dollar, which in the past has been absolutely a headwind for gold. Thirdly, higher interest rates, particularly long-term yields, which again typically have acted as a bit of a headwind to gold in the short term. So I get it. These are all factors in the short term. But if we look to previous prices, for instance, 2,000, you know, around the technology boom and bust, 2008, the Global Financial Crisis, or even 2002, the outbreak of war in Ukraine, we have seen a similar pattern, haven't we? Philippe, that we've seen a sell-off in gold. But what happened after that?

Philippe Gijsels:

Well, as you know, because I know you have been a bull on gold for a very long time as well, even one of the bigger ones which are rare in Europe. And indeed, if we look a bit into these figures, and indeed you mentioned at the end of the 1990s, the beginning of 2000, the internet bubble, you went down 21%. Then the financial crisis you went down 29%. More recently, in 2022, you lost 21%. So that's maybe not a coincidence that the correction that we see today is more or less of the same magnitude. So that's very typical. But like you say, what happens afterwards that is quite interesting because after the popping of the internet bubble and until 2008, gold went up 292%.

Back in the financial crisis after the initial drop of 29%, you went up almost 170%. And more recently, from the bottom after the correction in 2022, you went up 232% or something like that. So it is a mega move. I think that the message is fairly clear, like in the Dean Lewis song Waves:  “It all comes and goes in waves. It always does”. When you get a long-term bull market in gold, a long-term upward swing, I would call it, and it’s typically interrupted from time to time by very steep corrections, and 21% and almost 30% is significant, I would say.

But after that, you typically get moves of 100%, 200%. So I, I really think and I'm absolutely convinced that this is only a pause in a very long bull market because at the end of the day, all the drivers like the central bank buying, the diversification away from the dollar, the fact that people look to real assets, that they look for an inflation hedge, they're all still there. There's not too much supply coming on stream, so we have a big mountain almost of potential catalysts that are now snowed under a little bit due to what's happening in the short term with interest rates and the other things that we mentioned. But I think yes, this is a pause, and if you think about it, this pause is probably a very nice buying opportunity.

Edmund Shing:

Yes, I think you're right Philippe. I mean, I'm still in that camp. As you said, I'm still a gold bull, a little bit bruised, but absolutely still a gold bull for the long term because I think you're right, the absolute drivers like de-dollarisation, central bank buying, interest from Asian investors are all absolutely still there. And I think it's good to remind clients and investors as well that gold has been a superb diversifying asset overall, generally, not only during times of crisis, but actually in the long term. I mean, if we look at the performance of major asset classes since the beginning of the Millennium, since the beginning of 2000, so over the last 25 or 26 years, gold is up 1400%, even including the current 17% correction. So that's up nearly 11% per year over the 26-year period, and that's far ahead of all other major asset classes. So gold +1400%. The next best would have been US real estate investment trusts +122%, US stocks +660%, global stocks +411%, global bonds +140%, commodities +120%.

So gold has been the outstanding performer over the last 25 or 26 years. That is clear, and most importantly, beating stocks, and in particular US stocks. Everyone thinks US stocks are the place to be. It's been a good place to be. Can't deny that. But gold has been better despite the lack of yield. So I think there's a lot to be said there, Philippe.

I mean, if we were to broaden this out and say, okay, well, that's for gold. But what about commodities more generally, of which gold and precious metals are one part? What are your feelings here? Do you feel the commodity super cycle is still on at this point? Clearly, we've had energy prices joining the game now with oil and gas prices surging. What are your feelings for commodities more generally?

Philippe Gijsels:

Well, I'm even more bullish on them. Of course, they have had the same type of correction, even though, if you look at copper and other things, it's been a bit more modest, probably. But yet, gravity, higher interest rates are also pulling out the commodities space a little bit. There is the fear that probably if oil goes up too much, it will also hurt the worldwide economy. That's also not good for the commodity markets in general, metals and so on. So I think yes, there is also some sort of a pause here. But if you think about the conflict in Iran, it's of course between Israel and the United States and Iran. But eventually if you go to the basics of it, it's also a little bit of an economic tug of war between China and the US.

China has been playing the raw material game very much against the US in negotiations, the rare earths, the critical minerals, what have you. And every time that the US tries to negotiate the Chinese say, “if you don't do what we want, you don't get the rare earths anymore”. There is one commodity, of course, one part of the commodities space, namely energy, where the US are dominant and now they're playing very aggressively that against China and they kicked them out of Venezuela. Okay, it’s only one million barrels a day, but those barrels normally went to China maybe less so.

A lot of the oil that comes from Iran goes typically to the Middle East and to China, maybe not so anymore. So, the point is that US is playing the energy against China. Energy is playing the metals against the US. What I think is going to happen after the conflict or even before, China more than ever will invest like crazy in everything that is energy related, nuclear, but also classical energy, alternative energy, whatever they can get their hands on. And the US are going to mine like crazy whatever they can to be independent in metals, rare earths, and critical metals, and the bull market will continue.

I think what happens in the Gulf today, like you say, energy has also joined the bandwagon of the long-term commodity bull market. That's one thing, but I think that each and every country in the world, China, the US but also the others, will rethink their energy and also materials independence, and then this underscores once again that we are in the strongest bull market in commodities that the world has ever seen. So yes, I'm even more bullish today than a couple of weeks ago.

Edmund Shing:

Excellent. So still very bullish on commodities and on very positive on the super cycle more generally extending for another few years. I think what we should mention maybe for listeners is that we have kept our gold price target at 5,500 dollars an ounce. So clearly that's giving you nearly 25% upside from current levels over the next 12 months. So very positive. We retain our positive view on precious metals generally, but in particular on gold, and we still believe it's a very valuable, diversifying asset.

I think also worth mentioning is the fact that you know for those clients who are a little bit nervous about potential further downside, well, you can always use structured products. And that's one way that not only you can get exposure to gold, but also actually monetize some of the high volatility in terms of attractive pricing for structured products based on precious metals and based on gold.

Maybe one final question for you, Philippe, then to round off. We've talked about gold, we've talked about precious metals, we've talked about commodities. We haven't talked about the miners.

Now, obviously, the gold mining sector is a small sector, and a very volatile sector. It has had a big run up just like gold, and obviously a substantial correction recently. What are your thoughts here on gold miners? Is it a sector that we should be looking at now?

Philippe Gijsels:

Well, absolutely, and I could go on for two hours about this, but that's probably not the idea. But when you're bullish on all the metals, on gold, silver, also copper, and so on, the uranium, I think the miners are a very good place to be. And the point is, okay, I have to be honest. When you have been looking at the space already for a very long time, as me, over many years, very often it’s been a disappointment because even though the prices of the metals went up, they have flagged, they have made bad investments, bad takeovers.

I think that sentiment on the sector is extremely negative, and therefore also you see a lot of corrections for gold, and then silver goes down, the miners go down even more. But if you look at the valuations of these things, they're coining money even at these levels of gold, even after the correction. Some of them are quoted at five or six times earnings, and that's absolutely ridiculous, I think. And what I think is going to happen in the space, and therefore I think this is only the very maybe not the first thing, but very early in the game of this major bull market in commodities and also the miners, is that what you typically see is that first of all, the majors start to buy mid-term and mid-tier companies. Well, I think that's more or less happening, but not a lot yet.

Then you will see the mid-tiers starting to buy the juniors. This is still to happen, and then only you will start to see new investments and new projects, and so on, which typically take 10 or 12 years at least to come on stream. So we should not expect a lot of additional supply coming up stream. So that means that the bull market will continue, but I think the correction in miners, which is logically bigger than typically in the metal itself. But it's overdone, and I think I'm even maybe even more bullish on the miners because people have been logically and maybe rightfully a little disappointed over the last 20 or 30 years, but that makes it even more a better investment because I think they are getting their act together. They are making nice cash flows, doing the right things. And I think in the entire mining cycle, yes it's very early days. So I think what's happening in the market today is clearly giving us a very good, nice new entry point.

Edmund Shing:

Excellent, thank you, Philippe. So just to summarize, then we stay bullish on gold. We would see this as a positive entry point to retain our positive recommendation, 5,500 dollars an ounce price.

For those of those of you who are more sporty, shall we say, and can absorb more volatility, then maybe also look at the gold miners because we also think that they present an attractive opportunity. Again, I think the argument has to always be the same. Look through the short-term volatility. You're investing for the long term, and you know over the next six to twelve months, we believe that these will have proven to be excellent entry points for these types of assets. Well, thank you very much for joining me today, Philippe.

Thank you to our listeners, and please do like, share, and subscribe to our weekly series of podcasts. And until next time, thank you very much, and goodbye.