Hello and welcome back to the Institutional Beat podcast, where we cover interesting and relevant topics for institutional investors. I'm your host, Slava Sherbatov, and today we're going to talk about gold. Now, we generally don't often talk about individual commodities on this podcast, but the run up in gold prices has been so fast and so furious, and its knock-on effects felt well outside of the precious metals universe, that we felt we needed to dig into this topic and help you, our listeners, understand what's causing this and where we may go from here.

And we could not have found a better guest to help us with this than Jeffrey Schok, senior portfolio manager on our North American equity team. Jeff spent most of his investment career, which spans more than 20 years, covering gold and precious metals strategies. And Jeff, considering that gold just delivered its best calendar year return last year since 1979, is this like the most fun you've had investing in this area?

Well, thanks for having me here. Is it the most fun I've had? Last year was pretty great. I think if you would have asked me that question, maybe even a month ago, I would have said, yeah, this has been a blast. Today, I'm not having so much fun. Markets are down a little bit, I see a lot of red on my screen, but I can say I'm definitely happy that our unitholders, benefitted from all the performance that we had in 2025. You know personally, I like to see when gold prices move slow and steady. I think all this volatility does make it a little bit challenging, but, yeah, I'm still having fun.

Okay, well that's good to hear. And we will definitely talk about more recent developments in the market – in full context for our listeners, we're recording this on March 19^th. But just to, to step back and start us off, of course, the performance of gold has been well covered the last year or so, but just to level-set from your perspective, what are the main drivers behind the rally in gold, not just in 2025, but really that trend started, I think towards from the end of 2022, and how does this run compare to prior cycles?

Alright, that's a really good question. Well, you know, like you mentioned, gold was really a stellar performer last year; prices were up, you know from 2,600 right to 4,300 at the end of the year. That's a gain of about 65% – it was the strongest absolute performance we ever saw in a year, and you actually need to go back to 1979 to see better performance in percentage terms.

And you know, if you think back to 1979, that was the year of the Iranian revolution. We had geopolitical panic, we had an energy crisis, energy embargoes. There's actually a lot of parallels between what's taking place today and what took place back then, but just in terms of some of the themes and the drivers that affected the gold price, last year, I like to refer to them as the six Ds.

You’ve got debt, debasement, de-dollarization, deglobalization, diversification, and I've added one, it's Donald Trump II, and they're all connected and in 2025, they really all worked together to support the bullish argument for gold. I'm not going to go into too much detail about them, but I do want to talk a little bit about Donald Trump, because we like to refer to Trump as the gift that just keeps on giving to the global market.

He might not be giving to the gold market today, but generally he has. And if you think about when gold really started moving, it was after Trump was elected in late 2024. And that's because if you think about his policies, his actions, whether it's his trade and tariff policies, whether it's the spending packages, the Big Beautiful Bill, his constant attacks against the Fed, the Supreme Court, challenging their independence, now, you know, the war that we're seeing in Iran. Everything he does seems to inject a lot of fear and uncertainty in the markets, and since gold is considered a safe-haven asset, it has been very beneficial.

Now, just getting back to some of the other Ds that, I mentioned, and how it all comes together. You know, U.S. debt and deficits have been rising. Debt-to-GDP has been deteriorating over time, and rising debt of course, leads to fears about debasement because when you have such high levels of debt, the only way to really manage it over time is through inflation or financial repression of keeping interest rates artificially low. And then the threat debasement that leads, of course, to de-dollarization.

Countries want to reduce their reliance on any one currency. And if there's a lack of confidence in, let's say, the United States’ ability or willingness to pay over time, you see people moving out of the dollar. We're not seeing that today, but that's generally, still a trend. And then, you know, deglobalization that fractures the global economy a little bit, it contributes to inflation, so that speeds up the process, too. And then the end result of all of that, that's diversification. You have central banks, you have high net worth individuals, pension plans, retail investors – everyone's looking for a reserve asset that sits outside of the financial system. And you have to remember that gold, unlike fiat currencies, it has inherent value. It doesn't have counterparty risk, it doesn't have liability risk, so it has characteristics that are really attractive.

And just getting back to, you know, the actual traditional drivers in 2025, you had the U.S. dollar weaken through most of the year – gold has historically had a negative correlation with the dollar –and you also had a decline in real interest rates and real yields. And, you know, gold historically has had a negative correlation with that, too. So, you know, all of the themes, all the drivers, they all came together and helped to create this positive environment for gold. And, you know, just, I guess getting to the second part of your question, how does this run compare to previous cycles, you know, 2025 was an extremely strong year, but the cycle really began earlier.

It began back in 2022. And so, gold is up actually even more. It's more than 65% in 25, it’s closer to 200% over the cycle. And that's a lot, but it's not unusual when we compare it to previous bull cycles. So it's not unusual in context. And they're have really only been four bull market cycles since 1971, and that's when the Bretton Woods Agreement ended.

And this is the fourth cycle that we've been in. And some of the characteristics of those cycles are, firstly, that they're extremely powerful. You have returns in the hundreds, if not thousands of percent. In the 1971 to 1980 cycle, you had a 2,000% return. But the second characteristic is that bull market cycles, typically are long. They have good duration, longevity, you know, anywhere from 5 to 10 years. And then I'd say the last characteristic is that when the cycle ends – and, you know, all these cycles, they do end, gold is cyclical – it typically goes with a pretty big bang. You have, you know, very heavy corrections. So this cycle, you know, we're still just a couple of years into it, 200% is a lot, but it's, still below the average. So I don't think there's anything to suggest that this cycle is really extraordinary.

Well, that's very helpful, Jeff, and we'll definitely spend a bit more time on the outlook later in the podcast, but I wanted to switch gears a little bit and talk about gold equities. There is, of course, a very strong correlation between gold the commodity, and the performance of gold stocks, and that was certainly true in 2025.

Just looking at our domestic market, Canadian equities, for example, the gold subsector accounted for almost a third of the 30% plus gain for the TSX. Despite representing on average only something like 10% of the index. So can you talk a little bit about how gold producers and perhaps other companies that are in this sector are benefitting from this rally, and what are they doing in this environment?

Sure. You know, we said gold had a great move in 2025; gold equities had an even better performance in the last year. You know, gold was at 65%, equities were up double that on average, about 130%. You know, obviously some considerably more than that, too. And I think what this demonstrates is just the leverage that equities and stocks have, and they offer when you're in a rising commodity price environment.

And it's interesting that it wasn't just one category of company, it was everyone in the space –  producers, developers, exploration companies, royalty companies – everyone benefitted from these higher prices. What I found, I think, most interesting in 2025 though, the big story was really in the producer space and it was about margin expansion.

You know, margins historically had been a very good predictor of stock market competition. And in 2025, you had margins explode to record levels. You know, sure, costs came up, too, there were higher input prices, there were higher royalty prices, but generally companies did a very reasonable job, keeping these costs in check. And, you know, because of that, they've been able to generate free cash flow at levels that we've never really seen before.

So that's what they've been doing in this environment, they've been minting cash. And I think what's great and we're very supportive of this – they've actually been very responsible with the cash so far. They've been using it to sustain the business, to fund limited growth. They've increased their exploration budget significantly, and they're also returning cash to shareholders. So companies are doing very well in this environment and, you know, hopefully that can continue as we head into 2026.

And so while we're on the topic of Canadian equities, I think it's common knowledge that many active managers in our market are underweight the gold subsector and as a result have struggled in terms of relative performance.

And now I'm not going to ask you to speak for other managers, but do you have any views on why this could be the case? Why is this a part of our market that continues to be under-owned by active managers?

Well, actually, I think it's days like today or weeks like this week that, you know, Portfolio Managers (PMs) and generalists find it very easy to avoid being overweight the gold space. But you're absolutely right, like, if you were a PM and you were trying to beat the market in 2025 and you were underweight gold, there was no way to it to beat it. But I think there's a couple of reasons why generally, you know, most investors are under-owned gold. You know, first of all, if you're going to buy gold stocks, you have to have some level of confidence, at least in the outlook for gold.

And gold as an investment, it's controversial, and I think it's misunderstood. It hasn't helped in the past that you've had some very high-profile investors talk negatively about owning gold. You know, people call it a, a pet rock or something like that. So there's almost a stigma associated with owning gold. I think that's number one.

I think second, gold mining, it's a very specialized area, and so it's not easy for retail investors or generalists PMs who don't have, you know, a geology degree or a mining engineering degree, it's not easy for them to understand all the intricacies of the sector. So it's really just easier to avoid. And, you know, historically, gold represented, anywhere between, let's say, 5, 6, or 7% weight in the TSX. So it wasn't that large, was easier to ignore. It's harder to ignore today. You know, we were at about 15% of the TSX just a few days ago, but it doesn't make it any easier to understand.

And then I think, most importantly, what I would say is, and over the last couple of decades, gold miners have really earned a pretty bad reputation for making bad capital allocation decisions at the wrong time of the cycle. And, you know, they deserve that reputation, it's true. Like in that in the cycle that ended in 2011, there was so much value destroyed by management teams that companies essentially became zombies for a better part of a decade. And the issue with that cycle was, the focus was all about growth, and management teams pursued growth at all costs under all circumstances.

And to achieve that growth, they lost their discipline, they made poor capital allocation decisions, they chased M&A at extremely high premiums, M&A that didn't make any sense or had no synergies. They also advanced and greenlit projects and expansion projects and new mines, but they had to use very aggressive assumptions to make the economics work. But they did it, and that's why there was so much value being destroyed. So, I think generally PMs just don't trust the sector and the management teams, and that's why they're underweight.

Okay, got it. And you know these are probably the most dangerous words in investing: this time is different, but perhaps it's perhaps it's holding for now when it comes to management teams of gold companies today versus what we've seen in the past.

Now, you've talked about how much gold equities rallied. What has that done to valuations of these of these businesses? And how do you think about relative valuations today versus, what just passed?

Sure, yeah. Gold companies rallied last year, but they did it on the back of higher gold prices. And if you look at, you know, very common mining valuation metrics, like price to net asset value, that increased a little bit, but if you compare it to where gold miners traded historically, valuations are still, you know, very, very reasonable. And with the sell-off that we've seen this week, they're probably even more reasonable. And we don't only look at these, you know, mining-specific metrics. We do also like to compare, gold companies using, you know, more traditional metrics like EBITDA or free cash flow yield.

And just last week, we put together some charts comparing the gold sector to all other sectors in the TSX. Now at $5,000 gold, where stocks were trading last week, gold stocks were by far, the cheapest area amongst all other sectors in the S&P 500, even if you used $4,000 gold with stock prices from last week – not these lower stock prices that we have today – they were still exceptionally cheap compared to other sectors. And same thing for free cash flow yield. So, you know, the gold price has gone up, stocks have gone up, but we don't think that stocks are really all that expensive.

Okay, that's good, that's good to know. When you talked about, you know generally this obviously being a good environment for gold companies, and perhaps this is a period when a rising tide lifts all boats, but we also know – and you talked a little bit about this as well –  that investing in this area can be fraught with risks. Be that jurisdictional, operational, legal, etc., and so successful long-term investing requires a lot of care and expertise. Can you talk a little bit about how you and your team think about this space and what you look for?

Yeah, for sure, and that's a good question. I think unlike many of the other industries and sectors out there, in mining, you know, all it really takes is one bad asset within the company or one single, very poor capital allocation decision and you've completely, irrevocably, forever destroyed value. And that's a big deal.

And to avoid that, and at least to minimize the chances of this permanent loss out there, you know, we like to internally use a strategy that we call our three-pillar process, or three-pillar methodology for looking at stocks. And I think investors should probably do something similar, but maybe I'll just go into, you know what those pillars are.

The first pillar is probably the most important one. It's asset quality. There's a saying out there, that geology is destiny. And I think that's very applicable to investing, because geology is the foundation for everything, because you can't fix a bad orebody. The quality of that orebody, it's going to determine your cost structure, your margins, your profitability and returns, like for the life of the mine. So you can't really change.

And when we talk about quality, what we really mean by that are assets that are either very high grade – so there's a lot of concentration of gold within the ground – or that they're lower grade, but they have significant scale. So, in both cases you could develop and operate a very low-cost mine.

We also look for companies and assets that are located in stable jurisdictions, where there’s good mining culture, good rule of law. And then, of course, we're always on the hunt for assets – and this is important – that they either have untapped exploration potential so, you know, the potential for future growth in the reserves, or that they have the conditions where you could have potential expansions in the future, where you can unlock value through that. So, you know, asset quality, absolutely critical.

The next pillar we have is management quality. And this is important because even the best, greatest assets can become disasters if they're in the wrong hands. And we've seen this happen in the past. So, we're always looking for companies and investments where you have executives and teams that have good, relevant experience and expertise at the right stages of the project, right?

You don't want, a management team who's a fantastic at exploration to be operating the mine one day; that has to change. And the difference between exceptional management teams and really poor management teams, I think boils down to capital discipline. So we look for teams that have a history of success in capital allocation, companies that need good M&A, accretive M&A over time, and companies that have had success managing the balance sheet without having to, let's say, do too many equity deals under stressful situations.

And then I'd say, lastly, the third pillar is valuation. And that's because even great stocks can be bad investments if you buy at the wrong time. So, we're always looking to buy assets that we think are mispriced in the market. And most of the time that's when, you know, others haven't been able to recognize a lot of the hidden value that we see through our due diligence.

But we're definitely just as willing to, you know, sell positions that we think have run too far, too fast. And because mining is so sentiment driven and so momentum driven, it actually does create a lot of opportunities, more than you might think for trading around positions.

Thanks, Jeff. So that definitely brings to light the fact that, of course, the performance of gold companies is in large part influenced by what's happening with the commodity, but there's a lot of things happening beneath the surface that are very important considerations as well. And maybe we, you know, you talked a little bit about the performance of gold so far in 2026, so let’s just spend a few minutes on that.

I think overall gold continues to perform well, it's up as of right now, and again it's March 19th that we're recording and it’s up about 10% or so, but it's been volatile. And it's also interesting to see that when the news of the military conflict between U.S., Israel, and Iran came out, gold didn't act exactly as the safe-haven asset I would normally expect. So can you talk a little bit about what's been driving volatility in gold markets more recently, and also its behaviour in the context of these risk events?

Yeah, for sure. You know, we talked about how all the stars were aligned in 2025. Conditions have definitely changed today, I think some of that alignment doesn't exist anymore. So in 2026, really since mid-January, we've had a strong road rally in the U.S. dollar, especially in the last couple of weeks due to the Iran war like you said.

We've also seen yields tick higher, too. And, you know, the multiple interest rate cuts that were expected in 2026, they're kind of off the table at this point it seems, because of potential inflation. So we've had, you know, major changes in macroeconomic conditions and, we haven't talked about some of the other sources of demand yet, but, you know, central bank purchases, previously were a very important source of demand, between 2022 and 2024.

You know, even though we had a similar environment where the dollar was strong and rates were going up, central banks provided a lot of stability to the gold market. They were buying at a rate of about 1,000 tons per annum, which is close to a third of all annual mine supply. But this year, in January, and that's the latest data point we have, central bank purchases seem to have kind of fallen off a cliff a little bit.

Now, it's impossible to know at this point whether this is just a pause or whether there's something more structural to it. I actually think it is a positive, think they're going to come back to support the market, but if central bank purchases don't materialize and we still are in this environment of, you know, strong dollar and rising yields, gold will probably react, you know, more like it traditionally reacts when you have those type of conditions. You know, it could go down.

I think also, you have to think about investor positioning a little bit. Investors make a lot of money in gold. Anyone who's invested in gold over the last couple of years, has done very well. So it's not super surprising to see profit taking at this point.

But I think your question about, you know, why isn’t gold acting like a safe-haven asset today, I think that's extremely relevant. So, I do want to talk about that a little bit. I think it it's probably the number one issue that investors get wrong about gold. They think it's a safe-haven asset, and they think that it's absolute, that gold should always act as a safe-haven asset.

But what actually happens is that when you have these periods of market stress like we're in now, partly due to Iran and partly due to maybe concerns about AI, there's actually a lot of different competing factors that can push gold down, even when you've got so much fear in the market. And that's because gold behaves as a risk hedge, but it also behaves as a liquidity asset.

And ultimately, I think that liquidity trumps everything. So when you have these extremely sharp sell-offs, investors need cash, they have to cover their losses, they have to cover margin calls. You have redemptions, portfolios get out of balance that need to be rebalanced. Because gold is so liquid and so easy to sell, investors, you know, they sell it, it’s the natural asset to sell. So it starts becoming a source of funds instead of a refuge.

And that's why, you know, right now, gold isn't working as a safe haven. We've seen this happen many times before, during Covid, during the 2008 global financial crisis. Gold sells off first, because it's liquid. It also typically bottoms first. And then you see very, very strong rallies that follow, you know, in the hundreds of percent for – not for the commodity, but for the stocks after.

So I actually think people should be looking at this, as more of an opportunity, you know – when is this going to end? When is this liquidity selling going to end? And that's the time to really get back into gold.

Yeah, that's very helpful context, Jeff. And of course, we can't let you go without talking a little bit about outlook. And you've touched on this already throughout the podcast when you talked about historical context and how long these cycles can run. But I also know that your team always thinks in terms of scenarios and range of outcomes, and what could go right and what could go wrong. So can you briefly summarize the bull and bear case, for gold as you look at the market today?

Yeah, for sure. So like you said, we don't we don't actually have specific target prices. It's kind of a fool's errand, you know, there's a lot of volatility. But we do use scenarios. And that does help us, you know, work on our positioning and, understand how we might want to react and change the fund for a given scenario.

So, our our bull case scenario is really an environment that has continued volatility. I know volatility today seems to be hurting the market, but longer-term volatility is actually good for the market, especially when it has an impact on the global economy, because if you think about it, what do central banks and governments do when the economy is in trouble?

They resort to the same playbook every single time. They'll eventually reduce rates, they’ll eventually inject stimulus, money supply will go up, and all of those things will be positive for gold. So our bull case is an environment where volatility reigns. The six Ds that we talked about, that all comes into play, too. And ultimately we see accelerated buying in ETFs, central banks continuing to diversify, and all of this taking place because rates will have to come down and we'll see a lower dollar.

Now, the bear case scenario is actually essentially the opposite. It's an environment where we see lower volatility, a reduction in global uncertainty, and because of all that you have less need for a safe haven asset like gold. And, you know, a situation like that could evolve from perhaps Trump losing the midterm elections so that his power and his ability to disrupt the world is a little bit curtailed.

It could involve, you know, longer term, the world having more confidence in U.S. institutions like the U.S. Federal Reserve, like the Supreme Court, and that contributing to U.S. dollar strength. But if there is less need for a safe-haven asset, probably the risk premium comes out of gold a little bit, and that that would essentially be our bear case scenario.

Yeah, I think what's also important to keep in mind is that these are sort of bull and bear cases, but the reality is – and you spoke to this earlier – even if gold prices stay where they are now, or even a little bit lower, the gold companies remain extremely profitable, at these levels and so gold equities, is it fair to say that gold equities should be expected to perform reasonably well in that environment?

Yeah, I think that that's definitely a fair statement. Like you, you’d need gold prices down at $3,000 gold, I would say, before the industry becomes free cash flow negative. So there's a lot, like I don't think people understand just how profitable gold companies are right now. Like Q4 was an incredible quarter. We had record everything from the gold companies. The gold price in Q4 was $4,100. We're sitting still significantly above that today. You know, everyone's freaking out because gold is dropping a little bit, but companies are in just a fantastic shape, their balance sheets are strong, most companies are in a net cash position. Yeah, like once we find some stabilization, companies should do reasonably well this year, for sure.

Okay, so we can clearly spend hours on on this topic, Jeff, but maybe we'll cut it off here. It was great, I learned a lot, and I hope our listeners did, too. I want to thank you very much for making the time to join us today.

And I also want to thank all of our listeners. We hope you enjoyed this podcast and will join us again in the future. Thanks, everybody.

Thank you.

Note: References to the ‘dollar’ is U.S. dollar.

This content is provided for general information only and does not constitute financial, tax, legal or accounting advice and should not be relied upon in that regard, neither PH&N Institutional nor any of its affiliates accepts any liability for loss or damage arising from the use of the information contained in this podcast.