(Kitco News) - Gold's recent rally to over $2,900 per ounce, hitting more than 40 all-time highs in the past year, is being driven by long-term central bank buying and a more recent squeeze in the physical gold market, according to David Finch, CEO of Ixios Asset Management.
Speaking at the 2025 Minds and Money Conference in Miami, Finch told Kitco Mining's Paul Harris that central banks perceive holding the debt of other countries as "a less and less tenable position," especially after the U.S. sanctioned Russian reserves.
"I think that that's a long and structural process. It's going to take a decade for most central banks to make that kind of transition," Finch said. He noted that buyers aren't limited to countries opposing the U.S., citing Singapore, Saudi Arabia, and Poland as examples.
More recently, a "squeeze on the...in the physical gold market" has contributed to the price rise, with holders of futures standing for delivery.
While bullish on gold's future, Finch expressed a less optimistic view of the gold mining industry. "The gold mining industry is not a high-quality industry. It's hugely capital-intensive. Gold mines have short lives," he stated. He highlighted the need for constant reserve replacement and historically poor free cash flow yields.
However, with the recent surge in gold prices, Finch believes the next year will be a "big test" for the industry to see if companies will return cash to shareholders or reinvest it all to grow production.
Despite efforts by some major gold companies like Newmont to become more investor-friendly through asset disposals and capital return policies, Finch noted that Barrick currently has "other problems to worry about" and doesn't have much free cash flow to distribute.
While gold companies have increased returns to shareholders, distributing $6 billion in the past reporting season, roughly twice the amount in 2023, Finch suggested, "Six on 450 is not a great free cash flow yield. So, should they be more aggressive? I think so."
Turning to copper, Finch explained the recent price surge to around $4.50 per pound as "a little bit technical," with COMEX futures trading at a premium to the LME price and significant stocking in the U.S. due to tariff concerns. Looking ahead, he anticipates a "structural supply deficit" in the copper market driven by the rising energy intensity of GDP and the increasing need for power transmission.
Finch recently launched a new copper fund, driven by his belief that the "energy transition is all about energy self-sufficiency," particularly for countries like China.
He believes this will have a significant impact on copper demand, with the Chinese National Grid potentially buying three times as much copper as the construction industry. While acknowledging that commodity markets react to immediate supply and demand, not future deficits, Finch predicts, "By the end of this decade, we will have much, much higher copper prices," leading to "supernormal returns" for investors in well-managed copper companies. He cautioned, however, that this is a long-term view, and the price increase may not happen immediately.
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