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Morgan Stanley (NYSE:MS) provided insights into the current state of the gold market, which has seen significant price increases due to tariff uncertainty and robust central bank demand.
The precious metal has reached all-time highs, trading around $2,900 per ounce. Despite the potential for further short-term increases, Morgan Stanley's commodity team forecasts a decline in gold prices to $2,700 per ounce by the fourth quarter of 2025. This prediction is based on anticipated demand destruction and a supply-side response.
Year-to-date, gold has risen by 9.3%, outperforming Australia-listed gold miners covered by Morgan Stanley such as Evolution Mining (EVN), Northern Star Resources (ASX:NST), and Regis Resources (OTC:RGRNF) (RRL), which have seen stock price increases of approximately 29%, 16%, and 23% respectively. These gains compare to a 5.3% increase in the ASX 200 miners sector over the same period.
Morgan Stanley has maintained an Equal-weight (EW) rating on all gold stocks within its coverage. EVN is the firm's preferred stock, trading at a ~19% discount to the current spot price of gold. The firm's preference for EVN is due to its copper exposure, which is beneficial as copper prices have also risen by about 10% year-to-date. Copper is expected to constitute 26% and 27% of EVN's revenue in FY25 and FY26 estimates, respectively.
Despite NST also trading at a similar discount to the spot price of gold, around 20%, Morgan Stanley favors EVN for its stronger free cash flow (FCF) generation forecasted at 6.4% and 6.1% in FY25 and FY26 estimates, increasing to 7.5% and 9.7% at spot prices. NST's FCF generation is lower at 2.3% and 4.9% for the same forecasted periods, due to higher near-term capital expenditures.
RRL is considered the least preferred among the gold stocks covered by Morgan Stanley, currently implying a higher gold price. While RRL demonstrates strong FCF generation at current prices, concerns about the relatively short mine lives of its assets and the risks associated with ongoing acquisitions have led to caution from the firm.
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