Commodities | 10:01 AM
Analysts see an opportunity within the Australian Gold sector; Cit's subdued copper price outlook; downside pressure for oil; and the outlook for metallurgical coal.
-The opportunity within the ASX Gold sector
-Subdued copper price outlook, according to Citi
-Downside pressures post an oil price rally
-The outlook for metallurgical coal
By Mark Woodruff
The opportunity within the ASX Gold sector
While the Australian dollar gold price has been trading at record highs, Ord Minnett recently highlighted domestic currency weakness has driven a disconnect between Australian gold equities and gold price movements, as passive holdings typically move on US dollar pricing.
Should Australian gold miners deliver on production targets, the analysts anticipate higher margins will attract more attention from bottom-up fundamental investors.
After the around 40% gold price rally during 2024 in Australian dollar terms (circa 30% in US dollars), Goldman Sachs also noted last week both Australian and global gold equities underperformed by around -10% on average over the year.
This broker has retained a constructive outlook on the gold price into 2025/26, partly due to structurally higher central bank demand and cyclical support from a gradual boost to ETF holdings as the US federal funds rate declines.
As gold price increases are expected to outpace cost escalations over the next 12 months, Goldman anticipates its Australian gold coverage will benefit from a growing cash harvest, strengthening balance sheets, increasing capital returns, and potential merger and acquisition opportunities.
Highlighting sensitivity of the broker's gold price forecasts to interest rate change, Goldman now forecasts a US$3,000/oz price from mid-2026 versus December 2025 previously.
This adjustment reflects an updated expectation for -75bps of interest rate cuts in 2025, compared to -100bps previously.
Predicting gold prices are more likely to be sustained at elevated levels, Goldman also raised its long-run gold price to US$2,300/oz from 2029 onwards.
Among large caps, the analysts have a Buy rating on Newmont Corp ((NEM)) and Northern Star Resources ((NST)), which have some of the stronger gold production outlooks, while Gold Road Resources ((GOR)) and Bellevue gold ((BGL)) earn the same rating within mid-cap gold miners under coverage.
Overall, mid-caps have a higher average earnings sensitivity to gold pricing within the broker's coverage. Sell-rated Regis Resources ((RRL)) has the highest net asset value (NAV) price sensitivity due to a shorter mine life and higher costs.
Goldman highlights Newmont Corp and Neutral-rated Evolution Mining ((EVN)) both have an attractive long-term cost profile, with the latter's copper by-product supporting the lowest costs in the sector.
Calming nervousness prior to the return of President Trump, Citi recently explained a tariff on gold imports by the new administration is highly unlikely given its reserve asset status.
Subdued copper price outlook, according to Citi
Base metals investors are awaiting greater clarity on US trade tariffs, speculating on the direction and quantum of US interest rate cuts, and evaluating the likelihood of further Chinese policy easing measures.
Citi recently noted commodities overall continue to trade robustly, despite the US dollar index reaching a two-year high of 110.18 on January 12. The broker attributes strong early-2025 trading in metals to the bullish effects of pre-tariff front loading.
Late-2024 strength in consumption growth was related to temporary factors, in the broker's view, suggesting cyclical copper demand growth will likely remain depressed through 2025.
Recent temporary factors boosting consumption include not only pre-US tariff demand frontloading, but also fresh China trade-in-policy optimism, explained Citi. The latter is a government initiative aimed at boosting domestic consumption by encouraging consumers to replace old goods with new ones.
Copper consumption faces growing headwinds from expected tariff hikes and payback of frontloaded demand, which the analysts feel has bolstered metals consumption in recent months.
Copper prices fell -11% in the final quarter of 2024 though a -10% fall in the Australian dollar helped offset the downside for some miners domestically.
LME copper has held around US$9,000/t in recent weeks and the broker forecasts prices will ease to US$8,500/t during the first quarter of 2025 on growth headwinds from higher US tariffs, rising debt service burdens in developing markets, and economic challenges in China.
Regarding stimulus in China, which has potential to boost metals demand, Citi is expecting only modest and reactionary policy announcements in response to US trade policy.
Downside pressures post an oil price rally
The oil market remains hesitant to price in a sustained deficit or high prices, according to Citi's observation due, to expectations of an oversupplied market in 2025, high spare capacity levels, and the potential for geopolitical de-escalation and US energy supply stimulus from the incoming Trump administration.
Despite a strong US dollar, Brent oil prices rallied by US$9/bbl to US$81/bbl between Christmas and the second week of 2025. Sector analysts attribute this increase to pre-tariff front-loading and the impacts of both actual and fear-driven sanctions. The latest price is around US$80/bbl.
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