BlackRock's Hambro sees gold gains on fiscal woes, blasts buybacks

Hambro's outlook adds a major institutional voice to the case that gold benefits from fiscal debasement. According to him, price declines caused by shifts in rate expectations should be seen as buying opportunities rather than a trend change. He contends that because mining costs are rising more slowly than the gold price, margins should widen further, benefiting equities in the sector, including copper producers. His criticism of buybacks carries weight because BlackRock holds large positions in Newmont, AngloGold Ashanti and Gold Fields. This could push big gold companies toward more flexible capital return policies or toward channeling cash into new mine development. For bond markets, his warning that governments will have to offer higher rates to attract lenders suggests ongoing upward pressure on long-term yields.

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BlackRock's Evy Hambro views gold as a hedge against governments unable to curb their borrowing, and he urges gold miners to use their profits more prudently than those governments.

Key takeaways from Hambro:

• Evy Hambro, BlackRock's global head of thematic and sector investing, expects gold to keep rising as government debt, budget deficits and currency depreciation worsen
• He says sovereign bond markets indicate that public finances are in poor shape, and that inflating away debt could lead central banks to be less strict about hitting inflation targets
• He contends that gold miners once again offer roughly three times leverage to the gold price, as costs rise more slowly than prices
• He views gold as portfolio insurance and says allocations remain far lower than the roughly 10% often recommended
• He criticized Barrick Mining, Newmont, AngloGold Ashanti and Gold Fields over about $12 billion in buybacks, saying they lacked proper process; BlackRock holds sizeable stakes in three of them
• BlackRock expects near-term volatility from shifting rate expectations but sees gold's long-term trend as higher

According to Evy Hambro, BlackRock's global head of thematic and sector investing, gold is poised to continue climbing as government debt, budget deficits and currency depreciation deteriorate. He also noted that gold mining stocks are again providing amplified returns relative to the metal.

In an interview with MoneyWeek, Hambro stated that he expects the current conditions of mild stagflation, a weak dollar and geopolitical turmoil to persist. He argued that government bond markets are signaling that public finances are unhealthy, with rising yields reflecting huge debt levels and widening annual deficits. He believes that investors are increasingly unwilling to lend to governments that spend poorly and lack a plan to tackle their debts, and will demand much higher interest rates to do so.

Hambro said that real assets like infrastructure, commodities and gold have historically preserved purchasing power. He pointed out that when he began his career about three decades ago, copper traded near 60 cents a pound and gold around $400 an ounce, compared with roughly $6 and $4,000 today. He described gold as portfolio insurance. Wealth managers commonly held it in the 1990s, but allocations largely disappeared in the early 2000s, and he said they have returned at far smaller weightings than the roughly 10% often suggested.

He said the least painful way for governments to reduce debt is to inflate it away. That suggests central banks may be less strict about hitting inflation targets they already frequently miss.

On mining equities, Hambro said the historical relationship in which gold shares move about three times as much as the gold price is fully intact again. That reflects mining costs rising more slowly than prices, which has expanded margins. He said physically backed gold ETFs suit investors who want pure price exposure, while mining shares offer more upside, along with dividends and growth.

Hambro was sharply critical of gold majors' share buybacks, however. Speaking at the FT Mining Summit last week, he described recent programs as reckless and said they had been approved without proper process. Barrick Mining, Newmont, AngloGold Ashanti and Gold Fields have announced buybacks worth around $12 billion, and BlackRock owns about 12% of Newmont, 10% of AngloGold Ashanti and 6% of Gold Fields. He said companies should keep the flexibility to buy back shares when prices are low, rather than committing to large programs near the peak.

Hambro said BlackRock expects near-term volatility in gold as monetary policy and interest rate expectations shift, but sees the long-term trend remaining firmly higher.