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Every week, Kyle Caldwell and guests take a look at how the biggest stories and emerging trends could affect your investments, with practical tips and ideas to help you navigate your way through. Join the conversation, tell us what you want us to talk about or send us a question to OTM@ii.co.uk. Visit www.ii.co.uk for more investment insight and ideas.
Hello, and welcome to the latest episode of On The Money, a weekly show that aims to help you make the most out of your savings and investments. So in this episode, we're gonna focus on one of the hottest investment areas of 2025, which is commodities. We've seen the price of various commodities perform very well this year, and in particular, gold has soared. But in fact, that bull run for gold has actually taken place over the past two years in which the gold prices doubled from $2,000 per ounce to around $4,000 per ounce. In this episode, we're gonna mainly focus on gold and also the outlook for gold, but we'll also examine other commodities as well.
Kyle Caldwell:Joining me to discuss this topic is Olivier Markham, who is co full manager of BlackRock World Mining Trust. So, Olivier, I want to start off with the gold price. So it's risen substantially this year, so far in 2025, but that bull run actually started around eighteen months or two years ago. Now there's been various reasons attributed to why the gold price has been shining, including geopolitical tensions, the weakness in the US dollar. For you, what are the main reasons behind this bull run for gold?
Olivia Markham:As you say, there's there's been a number of factors. But if I was trying to kinda boil it down to one, I think it comes back to the currency aversion trade and that concern that people have around, you know, risk of traditional fiat currencies. You know, we've seen increasing fiscal deficits, particularly in The US. You know, we've had concerns around maybe where inflation goes to longer term. You pointed to geopolitical risk.
Olivia Markham:We see central bank buying. And when that all kind of boils down, I think it's, what is that true safe haven investment now? And I think many people are going back to gold as that, given that some of the pressures on some of those other more traditional safe havens, it the dollar, it US treasuries. And I think that kind of has really been the when you pull all that together, it's resulted in quite an incredible market for gold this year.
Kyle Caldwell:You mentioned central bank buying. That really has been a key driver as and is that because central banks are diversifying a bit away from the US dollar and then they're increasing exposure to gold?
Olivia Markham:So I think we also really need to remember that decisions made by central banks are very long term decisions. And we saw a change in the behavior of central banks about three years ago. We've effectively seen central banks double their exposure to gold within their their foreign reserves. So I think part of it is around diversification. It's thinking back to those comments around what is that true long term safe haven investment.
Olivia Markham:And, you know, we we had continued to see central banks globally increase the reserves of gold.
Kyle Caldwell:Now while I know that you don't have a crystal ball and it is impossible to predict the future direction of any assets, stock market, etcetera, I did want to ask, what are your thoughts? I mean, gold has had this really strong run over the past two years. I saw in a recent investment commentary, you pointed out that gold is, at the moment, it's still unloved among generalists. Could you explain what you mean by that?
Olivia Markham:Yes. I think there's two ways we can think about this. So first, if you look at gold, you know, we have seen more recently a pickup in gold ETF. So ETF's physically backed by gold purchases, but it still is below the peaks that we saw a few years ago and it's been quite recent that we've seen buying come through there. If you look at gold equities, we actually still have outflows from the main big large gold equity funds year to date.
Olivia Markham:So I think that is certainly an area that people of noted underweight relative to historical allocations. So, you know, for us, when we think there's no real point here where we are concerned about positioning in either gold or the gold equities. I still think this is a relatively niche area of the market. It's only really those specialist investors that are that are looking at this area, and relative to people that are running much bigger global funds or macro funds, yeah, this is still a, you know, a relative relatively small allocation in their portfolios.
Kyle Caldwell:We've seen quite a noticeable increase over the past couple of months in customers within Interactive Investor buying exchange traded commodities, in particular for gold and for silver. In terms of when gold becomes overvalued and potentially is a bubble, is this when there's a lot of demand from retail investors for gold?
Olivia Markham:I mean, when we think about whether or not a commodity looks extended, you know, naturally, we'll think about what have been flows into some of those gold ETF products, what has been positioning in the futures markets, where are the valuations, for example, on on some of the equities. And for us, none of those things are are flashing particularly red. So, you know, I I don't like to use the word bubble too too often, but, you know, we have had a, you know, a pretty significant move up in in gold, but it's it's not the moves that we've seen or the positioning that we've seen is is not causing us any concern yet.
Kyle Caldwell:And could you talk us through how you invest in gold within BlackRock World Mining Trust? How much exposure do you have? And could you talk through how you invest in gold, which is through gold mining companies?
Olivia Markham:Yeah. So so you're absolutely right. So we invest in the gold companies, the gold equities themselves, we believe that that is the best way to get exposure to gold because if you have a look over time, gold equities typically perform through the equity risk premium, through the optionality they have to gold prices, through their ability to grow reserves and resources. So if you have a look at the BlackRock World Mining Trust, we have actually our highest allocation to gold equities and precious metals that we've we've, I wanna say, ever had, but, you know, right up there, certainly over the last twenty years, and that's around about 40% of the fund today. And it's moved a lot.
Olivia Markham:And if I widen the clock back to 2022, 2023, we had less than 15% allocation to gold. So it's been a very deliberate move on our part. And I think something that's really important is when you think about how you get exposure to gold, is you're buying a gold equity or a gold company because you want to get leverage to the move in the gold price. And over the last couple of years, actually, the gold equity has been quite disappointing. You know, they just haven't given you an outsized return to the gold price, and that's because costs ate away at their margins and they really weren't able to convert higher gold prices into higher earnings and free cash flow and dividends.
Olivia Markham:It's been very different over the last sort of twelve to eighteen months. We've been in this sort of Goldilocks environment of relatively modest cost inflation versus where we'd been over the peak of COVID. The companies are being disciplined, and the gold company's done a great job of capturing high gold prices, turning it into higher cash flow, and stepping up dividends. And that's why these gold companies have given you that kind of two to one ratio in terms of their performance relative to the move in the underlying gold price.
Kyle Caldwell:I touched on earlier that some of our customers have been buying silver ETCs. I I know it's a very small part of BlackRock world mining. Could you explain why?
Olivia Markham:Yeah. So, actually, if you look at our gold companies, you know, quite a lot of our gold companies have silver exposure as well. So we you know, there's in terms of pure play silver, it's it's smaller, but it's actually really wrapped up into the rest of our gold companies. Silver's been a remarkable market. It's it's often thought of being a a beta to the gold price, but it also has this really interesting industrial use, very closely linked to solar.
Olivia Markham:If you have a look at the build out in solar, particularly in China, the industrial pull on the metal has been very strong as well. So we do have some silver exposure in there. More recently, we've bought actually a early stage exploration pure play silver company in The US, which looks really interesting. We've also had a silver company acquired from us as well, so, you know, there's been a bit been a bit of movement. But for us, you know, there there is some interesting opportunities.
Olivia Markham:They're just a bit more on the smaller cap spectrum.
Kyle Caldwell:And while both gold and silver have been taking up a lot of the limelight, there have been other areas of commodities that performed very well in 2025, in particular, copper. Could you talk us through your exposure to copper?
Olivia Markham:Yeah. I I think it is also worth mentioning because, I mean, gold has obviously performed incredibly well, but, actually, the rest of the commodity complex has performed very well as well. So you may reference, say, copper. Copper's up 25% year to date. The platinum group metals are up over 70% year to date.
Olivia Markham:There's some really interesting areas in our market right now, which I don't actually think is being kind of probably properly understood given this overwhelming market focus on AI. But if we go to copper, and copper is an area in the portfolio where we actually have a lot of active risk. You know, we have a big copper bet in the fund today, and that's predicated on two points. So from a demand perspective, you know, copper is the metal which is the backbone of electrification. It is key for renewable infrastructure, building up the grids, distribution of of electricity.
Olivia Markham:So that's really interesting and you put alongside that the power requirements that we are going to need for AI, the infrastructure spend that's going on globally, re industrialisation of major economies like The US, it all becomes very copper intensive. So I think the demand picture for copper looks really interesting over kind of the next decade or so. And then right now on the supply side, there has never been a point in time that I have seen more disruption in the copper industry from a supply side. We have three of the world's largest copper mines currently suspended. That puts incredible stress on a system that is already very tight.
Olivia Markham:So we think that, you know, the copper market looks interesting not just now, but as we look longer term because we are in an environment where we're gonna have to bring on more copper supply if we want, you know, electrification, if we want, you know, the low carbon transition. And in order to do that, we're gonna have to incentivize high cost assets into the market, and that means a higher copper price going forward.
Kyle Caldwell:And could you talk through how often you make changes to the portfolio and what your most recent changes have been perhaps over the past couple of months?
Olivia Markham:So, I mean, in terms of our investment horizon, you know, I think the best opportunities to generate alpha and outperformance is kind of when you look beyond three years. So, yeah, we do invest not necessarily on a quarterly earnings change, but where we think a company could be in the future. In saying that, you know, we probably turn the portfolio over 30% to 40% or so during the year, so it's not a huge number, but we're certainly pretty active and particularly when you have some big moves, need to be quite careful around how you manage positions, etcetera. In terms of recent changes that we've made, I think a it's been it's it's been further back, but, you know, we made a very deliberate decision at the sort of this time last year to increase our gold exposure. You know, we saw gold as a really good way to play the uncertainty that was coming in terms of tariff announcements coming out of The US, and and it's kind of been the correct decision.
Olivia Markham:More recently, there's some really interesting dynamics that are happening in terms of, for example, the European steel industry with protectionist movements going on. That big shock that I talked about to copper, that's been very positive for a lot of the other copper companies out there. There's a big kind of focus at the moment around securing critical minerals outside of China. We've been playing that theme as well. So there's lots of micro themes that are always running underneath the in the portfolio that we're trying to capture too.
Kyle Caldwell:You run a diversified portfolio, investing in various different commodities. What are your thoughts on investors that decide to go down one route and to gain exposure to a particular spot price through an exchange traded commodity?
Olivia Markham:Yeah. So, I mean, that is I guess, when you think about I wanna have exposure to commodities or natural resources, you can do that through commodities themselves, or you can do it through the commodity equities. I touched on this earlier, but if you have a look over time, it's been the correct decision to invest in the commodity equities because they've given you that equity risk premium, they give you that optionality, that leverage to the move in the commodity price. The time that it doesn't work is an environment where you have cost inflation, which eats away at the producer margins. You see a lot of capital cost inflation, that's also a difficult environment.
Olivia Markham:Or you see bad behaviour by the companies and kind of value destructive behaviour, and that has definitely been the case in our in our sector. We've we've we've had some fairly you know, we've we've got a poor track record of large scale M and A in the last cycle, so that that that can have that kind of value destructive behaviour. I think for the right here and now, I think that we are in this environment where commodity markets are becoming increasingly tight, that puts upward pressure. The companies are being well behaved. They're trading the companies themselves are trading at a discount to their historical valuations.
Olivia Markham:So I'm very much in support of investing in the commodity equities versus the commodities themselves. And just to test me on that, we can invest in the commodities, and we and we choose not to. We are choosing to invest in the equities directly.
Kyle Caldwell:And how often do you meet management teams? And do you meet management teams in person, and do have on-site visits?
Olivia Markham:I meet so many management teams. It's it's the main thing we do in our job. I I love doing it. You know, we have hundreds of meetings per year that can be in the office, that can be conferences. We've also got this great opportunity to get our hard hats on and go out and see see the assets.
Olivia Markham:So it's it's a big part of what we do, and I think it gives us actually our edge, particularly in a fund like the Black Hot Whirl Mining Trust, which is a closed end vehicle where we can buy into these earlier stage companies, work with the companies, nurture them, see them grow and watch that value grow alongside that with the share price. So big part of the job. And I think it is really important that we have a team that is well resourced with technical expertise so that when we do go out and see the assets, we go in there with an educated view and it helps us not only understand the opportunities, but also the risks that come. And and that's a big part of our job too, is trying to avoid some of those pitfalls that can come in kind of investing in this sector.
Kyle Caldwell:I finally wanted to ask about the outlook for dividends. So Blackrock Whale Mining aims to deliver both capital growth, but it can also pay an income as well. Although I know it's not a progressive dividend policy, and last year, there was a reduction in the income that was paid out to shareholders. So what's the outlook now for BlackRock Whale Mining's dividend?
Olivia Markham:Mhmm. So I think it's just you you kind of outlined a dividend policy there somewhat. So, I mean, we we effectively payout all of the income that we generate from the underlying holdings of the portfolio and also some of the other things that we do around option writing, we can invest in mining debt securities, etcetera. So when you think about the outlook, it fundamentally depends on the outlook for dividends from our sector. We went through this period around Covid and just after of exceptionally high commodity prices, particularly in the bulk commodities like iron ore, and that resulted in very, very high dividend payments from the sector.
Olivia Markham:Commodity prices have moved off those highs and naturally our dividend has come down with that. As I look forward, what we're seeing is that gold companies are increasing their dividends, starting from a small base, but they're increasing their dividends. We have companies that have got strong balance sheets, so they have got scope to pay a fully covered dividend and they do pay fully covered dividends. Capital spending has increased a bit, but still quite modest. So, you know, I think we're still in a very healthy environment for dividends as as I look forward.
Olivia Markham:The absolute direction, honestly, will be will be dictated a lot by what the the commodity prices do. But for us in the World Mining Trust, and and I think this is really important versus, you know, investors out there that might just wanna invest in a a single name mining company themselves is, you know, our aim really is to try and generate a dividend which is more stable, more defensive, more diversified than what's out there from just a single company or just a single sector themselves because we can use all these other tools. You know, we've got the option writing, we've got the ability to invest in privates, we've got some royalty investments of our own, we've got the mining debt securities and the equities on top and the dividends from the equities on top. So, yeah, our dividend is much more diversified and that's why you saw when there was a big dividend cut to the bottom of the cycle in 2016, our dividend was much more defence we obviously had to cut, but it held up a lot better than the single name companies did. So I think that, you know, as we look forward, that's that's our aim.
Olivia Markham:You know, we wanna have a very competitive dividend that's well underpinned and diversified.
Kyle Caldwell:Olivia, thank you for your time. So that's it for our latest episode of On the Money. If you enjoyed it, please do follow the show in your preferred podcast app, and please do leave us a rating or a review. Those ratings and reviews really help to improve the visibility of the podcast and to get it into more ears. We love to hear from listeners.
Kyle Caldwell:You can get in touch by emailing otm@ii.co.uk. And in the meantime, you can find more insights and practical pointers on the Interactive Investor website, which is ii.co.uk. And I'll see you next week.