Morningstar equity analyst Jon Mills has stated that gold equities are trading well ahead of their fundamental value, even with bullion prices reaching record highs. This assessment comes as the research house upgrades its price assumptions for gold, but cautions that the sector is “materially overvalued”. Morningstar provides independent investment research and credit ratings. The company offers data and insights on a wide range of investment offerings.
The firm now projects gold to average approximately $US4700 an ounce from 2026 to 2028, an increase from the previous estimate of $US4000. This adjustment follows bullion hitting a new high of around $US4600, driven by concerns regarding US Federal Reserve independence, strong buying activity from ETFs and central banks, and ongoing American fiscal deficits. Morningstar has also extended its mid-cycle price forecast to 2030, maintaining a long-run marginal cost assumption of about $US2050.
Despite the increased fair value estimates for its gold coverage, Mills notes that the market’s response has outpaced fundamental performance. “Higher assumed near-term gold prices see the fair value estimates for our gold coverage rise by between 9 per cent and 14 per cent. But the higher gold price is more than reflected in the shares, and our coverage is materially overvalued by between 60 per cent and 265 per cent,” said Mills.
Morningstar indicated that elevated bullion prices continue to support margins within the industry, despite higher unit cash costs being observed across the sector. The research suggests that while the gold market remains strong, current equity valuations may not be sustainable in the long term.
