George Cheveley
Central banks have returned to the gold market in force following a Q1 slowdown, strengthening the case for a re-rating of gold mining equities. Sustained official-sector demand suggests the gold price may be better supported than many market participants had assumed.
Central banks added a net 289 tonnes of gold in the second quarter of 2026, according to the World Gold Council, a record for a second quarter and 62% higher than a year earlier. Purchases were more than five times Q1’s central-bank net gold demand, challenging concerns earlier this year that central banks were retreating from the market. Poland added 51 tonnes, while China added 33 tonnes.[1]
George Cheveley, Natural Resources Portfolio Manager: “The significance of the central-bank data is not simply that they are buying gold again, but what it tells us about the level at which they are prepared to buy. Central banks remain committed to accumulating gold, but they are price sensitive. If that demand is putting a floor under gold around these levels, the implications for gold miners could be significant – particularly when consensus expects the gold price to move considerably lower.”
China remains particularly important to the outlook, accounting for around one-third of annual gold demand. While its recent monthly additions are relatively modest compared with its history of accumulation, continued buying points to the strategic role gold plays in its reserves. BMO analysis suggests that China’s central-bank gold holdings could already exceed 5,200 tonnes, more than double the official figure.[2]
Its continued buying also underscores the strategic nature of China’s gold programme, including its ambition to bolster the renminbi’s role in the global economy.
The trend extends beyond China. Since Western governments froze Russian US dollar assets following the invasion of Ukraine, reserve diversification has become an increasingly important consideration for central banks. Gold’s average share of central-bank reserves has risen from 14% to 25% in two years, although part of that increase reflects the rise in the gold price.[2]
Cheveley: “Gold has several characteristics that remain attractive to central banks: it is highly liquid, acts as a long-term inflation hedge and, critically, does not carry another country’s credit risk. For countries looking to diversify their reserves, those characteristics are difficult to replicate.”
Implications for gold equities
If gold prices remain around current levels over the coming years, gold mining could remain extremely profitable – and potentially more profitable than current consensus expectations imply.
The disconnect with market expectations is significant: the average 2030 gold-price forecast among analysts at major financial institutions is US$3,890 an ounce.[3]
Many gold miners are already enjoying margins above 100%, yet valuations have not returned to the levels seen historically when gold equities traded at a premium to the wider equity market.
That premium disappeared during the 2010s following a period of poor capital discipline across the sector, when a number of miners overborrowed, overexpanded and overpaid for assets. The industry has since changed significantly, with balance-sheet discipline, capital allocation and cash returns to shareholders now guiding principles for many mining companies.
Cheveley: “Gold miners spent much of the last decade rebuilding credibility with investors. Capital discipline is considerably stronger, balance sheets are healthier and management teams are much more focused on cash returns to shareholders.
“If gold can remain in a US$4,000–5,000 an ounce range, the earnings and cash-flow potential for the sector is substantial. Yet gold equities are still not trading at the valuation multiples they commanded historically. That creates the potential not only for higher earnings, but for a re-rating.”
Gold equities rose by around 30% in August. However, that move broadly reflected gold stocks’ typical leverage of around two times to movements in the underlying gold price, rather than a significant expansion in valuation multiples.
Cheveley: “The rally in gold equities does not necessarily mean the opportunity has passed. So far, much of the move can be explained by the normal leverage miners have to the gold price rather than investors paying higher multiples for those earnings. If central-bank demand continues to support gold around current levels, there could be further upside from a re-rating of the sector.”
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