Material Matters: Gold, Silver & Lithium

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Analysts see potential gold price upside and recommend ASX-listed exposures; further upside for the surging silver price; and the rationale for continuing some loss-making lithium operations.

-Where to for the gold price and equities?
-Further upside for the surging silver price
-Why lithium production cuts haven’t been more extensive

By Mark Woodruff

Where to for the gold price and equities?

UBS maintains a positive view on the ASX gold sector, raising gold price forecasts from 2026 onwards to account for diversification, safe haven flows, and expected price resilience amid heightened macroeconomic volatility and geopolitical tensions.

Gold equities have retraced approximately -10% over the past month, reflecting a -5% decline in the gold price driven by delayed interest rate cut expectations and US dollar strength following the US election outcome, explain the analysts.

According to Bell Potter, markets are positioning for corporate tax cuts, tariff hikes and immigration curbs under a Trump Presidency. The latter two are expected to have an inflationary impact, delaying the interest rate easing cycle and raising interest rate expectations compared to pre-election levels.

In the longer term, reduced tax revenue and higher inflation could significantly expand the already significant US budget deficit, explains the broker.

As tariffs take effect, they are not only inflationary but, overall, tend to lead to slower economic growth, highlights Bell Potter, bringing the risk of stagflation (high interest rates and low growth) into the mix, an environment where gold has historically outperformed other asset classes.

Regarding demand, UBS highlights gold reserves held by many central banks remain small as a percentage of total assets, while consumer demand for physical gold as an alternative investment should stay resilient, particularly in China and India.

On the supply side, UBS notes mine production is slow to respond to higher prices, while large hedging strategies (hedged gold is counted as supply) are generally avoided by major producers, as shareholders typically prefer uncapped exposure to gold price upside.

While this broker’s long-term gold price forecast remains unchanged at US$1,950/oz, across 2025-28 estimates are adjusted by -3%, 3%, 4% and 4%, respectively, to US$2,800/oz, US$2,850/oz, US$2,700/oz and US$2,400oz.

Price targets across the UBS research coverage of gold miners rise by up to 4% in the case of both Northern Star Resources ((NST)) and Genesis Minerals ((GMD)).

UBS also likes Persius Mining ((PRU)) and De Grey Mining ((DEG)). All four are Buy-rated.

For these stocks to outperform, UBS suggests the key catalyst remains delivery on production guidance and subsequent generation of free cashflow.

Already strong balance sheets and strong cash generation should drive dividends and buybacks.

Under Bell Potter’s precious metals coverage Persius Mining is not researched, but as is the case for UBS, Northern Star Resources, De Grey Mining (Speculative Buy) and Genesis Minerals attract Buy ratings.

This broker’s additional Buy ratings include Capricorn Metals ((CMM)), Gold Road Resources ((GOR)), Regis Resources ((RRL)), Catalyst Metals ((CYL)) and Alkane Resources ((ALK)), while Speculative Buy ratings are assigned to Southern Cross Gold ((SXG)), Chalice Mining ((CHN)), and Santana Minerals ((SMI)).

Further upside for the surging silver price

Over 2024, the silver price has surged by around 30%, driven by consecutive market deficits since 2019, supported by robust industrial demand and limited mine supply growth, explains Morgan Stanley.

As 75% of silver supply is derived as a by-product from lead/zinc, copper, and gold mining, the broker points out supply is less responsive to silver price movements alone.

Silver’s 55% exposure to industrial uses, particularly in photovoltaic cells (accounting for 20% of total demand) sets it apart from gold with less than 10% exposure.

Silver benefits from a diverse range of demand sources, spanning industrial uses (predominantly its role as a conductor in electrical and electronic applications), as well as jewellery, silverware, bars and coins.

Investment demand via physically backed exchange traded products (ETPs) can also be meaningful, explains Morgan Stanley.

The analysts recognise the positive impact on the silver price from gold’s rise, driven by physical investment demand, but potential downside risks include stronger-than-expected zinc mine growth or weaker-than-anticipated economic growth, which could dampen industrial demand.

Strong demand from electronics and photovoltaic applications is expected to sustain significant silver market deficits into next year and beyond, even as mine output gradually recovers, according to the analysts.

Morgan Stanley highlights an upcoming seasonally stronger period for silver and gold demand, driven by India’s wedding season in November and December and the Chinese New Year in late January.

This broker forecasts modest price upside for silver to US$33/oz from around US$31/oz by the June quarter of 2025, supported by lower yields benefiting gold and persistent silver deficits pushing the gold-to-silver ratio below 80.

As this much-watched indicator has moved within a relatively narrow range between 75 and 90 since mid-2021, with the current ratio of 86 above the 10-year average of 80, Morgan Stanley suggests the balance of risk is for the ratio to move lower moving into the first half of 2025.

Why lithium production cuts haven’t been more extensive

Since August, Macquarie explains lithium production curtailments, plant shutdowns and business mergers have combined to moderate the pricing downtrend, and further supply cuts may be on the horizon.

During the analyst’s recent trip to China, the general vibe was lithium prices could be range bound in the near-term between RMB70,000-90,000/tonne for lithium carbonate equivalent (LCE).

Rising business mergers indicate smaller producers/developers are facing increasing cash flow pressure, explains the broker.

Positively, October Chinese plug-in vehicle sales remained strong on subsidies and model launches, which Macquarie observes was partially offset by slow plug-in sales in the US and Europe.

At the same time, Macquarie warns there could be a sharp but brief price drop in the next two months when lithium chemical restocking eases off, in line with seasonality.

Even though prolonged lower lithium prices have led to production cuts and delays in several new projects, Citi has sought to clarify why supply reductions have not been more widespread even though most producers are loss-making on an all-in basis, including capital costs.

Recently in Australia, Mineral Resources ((MIN)) has curtailed spodumene production at the Bald Hill lithium mine and the 50%-owned Mt Marion underground operation, while at the Pilangoora hard-rock lithium deposit Pilbara Minerals ((PLS)) will place the Ngungaju processing plant on temporary care and maintenance from December 1.

Also, Arcadium Lithium ((LTM)) announced in early-September Mt Cattlin will suspend its fourth quarter waste stripping and move to care and maintenance by mid-202525, while its 3Q production results also indicate a slower Olaroz phase 2 ramp-up versus the prior guidance.

Citi explains some loss-making operations continue because mine sites hold significant intellectual property, and rehiring a workforce is particularly challenging, especially in Western Australia.

Also, expanding production at several operations such as Pilgangoora and Greenbushes, owned by IGO Ltd ((IGO)), means capital costs are elevated in FY24, note the analyst, and should trend down with economies of scale, thereby improving margins.

Citi suggests fear of missing out is another factor, with many miners regretting not capitalising on the US$7k/t pricing available in late 2023 or failing to capture full production volumes during ramp-ups, as seen with Mineral Resources when Wodgina was placed on care and maintenance during the previous down cycle.

In a review of major hard rock lithium mining costs in Australia, Macquarie highlights IGO Ltd’s Greenbushes mine showed the most competitive costs under a range of calculation methods, while Pilbara Minerals had the second lowest costs (C1) including sustaining capex.

By contrast, cash costs at Mineral Resources came in above current spot spodumene prices when sustaining capex is included, though several recently implemented cost reduction measures could help to lower the costs at Mt Marion and Wodgina.

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