Gold buying remained popular in the first quarter. A few years ago, that statement would not have meant much. But given the precious metal hit another record of $5,500 (£4,057) an ounce (oz) at the end of January, the willingness of people to swallow the higher cost remains surprising.
The World Gold Council’s first-quarter demand report showed this – the actual volume of gold purchased in the quarter was 1,231 tonnes, down just 6 per cent on the fourth quarter and up 2 per cent on the year before. That’s despite the average price being $2,860 an oz in the first quarter of 2025, compared with $4,873 an oz in Q1 this year.
The dynamics that have sent the gold price so far beyond previous record levels were all evident in the first months of 2026: central bank purchases and bar and coin buying.
ETF holders sold on a net basis, but this was balanced out by central banks coming back to the party after slowing spending in the last quarter of 2025, resulting in a 17 per cent uptick between the periods.
More recently, there are indications that generalists are looking at gold again after some profit-taking earlier in the year. Patrick Brenner, chief investment officer (mult-asset) at Schroders, said last week that he had “reopened [a] gold position after taking profits earlier [in April], as central bank demand remains strong”.
This buying should help stock market investors by adding to the solidity of a new price ‘floor’ that gold would be unlikely to trade below. There is no hard agreement about what price this might be, although analysts are using $3,500 an oz as a long-term price forecast, and $5,000 an oz for the next few years.
That gives miners a dose of certainty as their costs rise. Margins remain very high and the share sell-off seen since January has pushed up free cash flow yields even higher.
The question is whether there is still value in this sector after share prices tripled or even quadrupled last year. Management teams are certainly seeing value – paper deals are spreading like wildfire in Australia and North America. The latest is a proposed $7.7bn combination of Regis Resources (AU:RRL) and Vault Minerals (AU:VAU) at just a 10 per cent premium to Vault’s previous share price.
Margins
Last week, Endeavour Mining (EDV), London’s largest pure-play gold miner, reported first-quarter adjusted net earnings of $370mn and free cash flow of $613mn, increases of 69 per cent and 50 per cent, respectively, compared with last year.
The realised gold price for the period was almost double its level a year ago, but higher taxes, royalties and oil prices ate into (still very high) margins.
Free cash flow expectations for this year show that investors are not overpaying for this performance. Endeavour shares remain below the five-year average on a price-to-free cash flow basis. This ratio is down to six times compared with an average of nine times.
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Cash is going into a combination of shareholder returns and capital spending. This year will continue to see a mix: last month also saw the publication of a definitive feasibility study into the Assafou project. Endeavour will also spend $100mn this year on exploration, and is looking further afield than its current West African base, with deals in Guyana and Kazakhstan.
Analysts are not worried that rising construction and exploration budgets will eat into dividends and buybacks.
“We estimate the current gold rally could double Endeavour’s free cash flow yield in 2026 to 11 per cent, leaving the group in a comfortable position to finance future growth [Assafou] while maintaining sector-leading returns to shareholders,” says Marina Calero at RBC Capital Markets.
Stifel analyst Alex Bedwany goes further, forecasting free cash flow yields of 18 per cent this year and 17 per cent in 2027.
At the smaller end of the market, there are some even bigger free cash flow yields on offer. Serabi Gold (SRB) produced 44,169 oz from its Brazilian gold mine last year and announced a maiden dividend last week.
On Peel Hunt’s numbers, its sales will climb from just under $150mn last year to over $250mn this year. That will take free cash flow up to $68mn, putting the 2026 yield at around 20 per cent.
Given Serabi is reliant on a single mine for gold production and will now be spending more to hit a 60,000 oz a year target, it is no surprise there is a discount to a major producer like Endeavour. Peel Hunt analysts reckon the gap is too wide, however.
“Trading at under two times 2026E and 2027E earnings before interest, tax, depreciation and amortisation suggests to us that the market remains sceptical that volume growth, even to 60,000 oz, will be delivered, which we believe provides an opportunity for investors,” they say.
It’s not just gold prices that determine margins. Operating costs across the industry are coming under more scrutiny as higher oil prices start to bite. Endeavour said last week that fuel is 10-15 per cent of operating costs, although it only alters its all-in sustaining cost per oz by $10 for every $10 the crude price rises.
Greatland Resources (GGP), one of the top performers in the industry, noted the broader impact of higher diesel prices in its own first-quarter results last week.
“[The] escalation in fuel prices is generally inflationary across the economy and that’s going to impact the resources sector as well,” said chief executive Shaun Day. Diesel makes up just under 4 per cent of Greatland’s costs, the company said.
Up, up, up
Combining talk of margins and institutional gold buying is useful because the latter underlines why gold has held at such historically high levels.
If buying continues despite the cost, there’s less chance of broader economic shifts sending miners’ shares back where they were two years ago.
The strange dynamic of equities, the US dollar and gold all remaining strong has continued for far longer than thought. On the other hand, war spreading in the Middle East has not seen safe haven buyers bid gold back up beyond $5,000 an oz.
Iran’s renewed attacks on the Gulf states this week and falling oil stocks elsewhere in the world could bring those buyers back. Equally, there is scope for the price to drop further.
“While gold’s long-term tailwinds persist, namely central bank reserve diversification and concerns over fiscal deficits, a period of consolidation should be welcomed,” says SP Angel analyst John Meyer, who noted profit-taking following the February commodity and equity price highs.
“The correction is likely to present good buying opportunities, following a year of balance sheet strengthening supported by strong free cash flow.”
A plateau in gold miner shares could be a good moment for investors to take a breath and refine what their equity holdings are doing for them – some companies are putting the cash flow into growth, while others are trying to balance expansion and shareholder returns.
