Steffen Ullmann
Senior Portfolio Manager – Investment Grade
Gold price at record levels – but what does this mean for credit quality? While the operating figures of many gold miners are improving in the short term, structural limitations remain.
Strong operating environment, but structural hurdles
Gold producers are currently benefiting from historically high gold prices of over USD 3,000 per ounce. But is this also reflected in improved credit quality in the long term? For a well-founded assessment, the current earnings potential must be clearly distinguished from structural factors in the credit profile.
The current high gold prices should boost income and thus, ceteris paribus, lead to improved cash flow generation. There is therefore a chance that this improved income situation will be reflected in a sustainable improvement in the balance sheet. However, several factors argue against a sustained improvement in credit quality:
Low debt – Many companies already have solid balance sheets. Surplus cash flow therefore flows to shareholders rather than to the balance sheet.
Company size – economies of scale can only be achieved in the long term through acquisitions or new projects.
Country risk – A large proportion of production takes place in emerging markets, which structurally increases the business risk.
In our view, all three factors provide a natural ceiling for credit profiles in the current context.
The added value of an independent fundamental analysis is particularly clear when it comes to country risk. As the risk does not come from the sales markets but from the production locations, the distribution of sales is not sufficient as an indicator of country exposure. It should also be noted that companies with a similar mix of developed and emerging market countries are sometimes assigned to different credit universes. From our perspective, this represents an inconsistency.
Source: Bloomberg, sales distribution by developed and emerging markets, own calculation; as at: 26.03.2025.
Complexity needs independent perspectives
It is precisely in these cases that fundamentally oriented, active management excels: It identifies the main drivers of risk – regardless of formal classifications – and assesses the attractiveness in the relevant peer groups. This allows the risk/return ratio to be assessed on a sound basis.
With our credit income opportunities approach, we create clarity in complex market structures and make them investable. We do not rely on labels, but on fundamental analysis – globally conceived, implemented independently of benchmarks.
“Solid fundamental analysis separates
temporary strength of sustainable
Credit quality.”
– Steffen Ullmann
Senior Portfolio Manager – Investment Grade
Risks
Price losses due to increases in yields and/or higher risk premiums are possible. A total loss cannot be ruled out either.
Past performance is not an indication of future results, nor can future performance be guaranteed.
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