Trade tensions, geopolitical issues, and concerns over the US Central Bank’s independence have driven investors towards gold, leading to significant activity among precious metal miners.
The NYSE Arca Gold Miners Index has hit a new record and is poised to finish strong by the end of the session, marking its first peak since 2011. This surge comes as investors seek refuge in safe-haven assets during the European debt crisis and amidst the US credit rating downgrade. A wave of uncertainty has propelled some of the major stocks in this benchmark—companies like Newmont Corp., Agnico Eagle Mines Ltd., Wheaton Precious Metals Corp., and Barrick Mining Corp. have all surged by over 80% this year.
Investors, grappling with global instability from trade conflicts and regional tensions in places like the Middle East and Ukraine, are returning to assets known for stability. The actions of former President Donald Trump to remove Federal Reserve Governor Lisa Cook, combined with indecisive plans from the central bank regarding interest rates, have only fueled the rise in gold prices, benefiting mining companies.
“The profit margins for my gold companies have nearly doubled compared to last year; the margins from selling gold have really increased,” one executive shared. “So of course they should be performing well.”
Yet, despite these recent gains, gold miners are trading at lower multiples compared to the broader market, earning less than 21 times future earnings compared to the S&P 500’s near 27.
Andrew Musgraves, a product manager at Vaneck, reflected on past gold rallies: “Back in 2010, companies overspent and got punished by the market. But this time, they’ve managed their costs well, leading to better earnings.”
Big winners
Analysts project Newmont’s revenue to jump over 100% in 2024, breaking a two-year decline, and expecting a 50% increase this year alone. The Denver-based miners have seen their shares double, reaching their best performance in three years.
Veritas analyst Pradier sees Newmont as a top pick, citing its turnaround and lower production costs. Agnico Eagle, with its solid execution and key Canadian assets, is also among the favorites.
Canadian miners have had a remarkable year as well, with US shares climbing over 90%, hitting record highs. Agnico Eagle is set for substantial revenue while anticipating a drop in gold production.
Barrick, despite reporting a $1 billion loss in the second quarter due to issues in Mali, has experienced an 80% rise this year due to soaring gold prices.
Stolen lightning
Gold stocks are contributing significantly to broader market strength. This year, the Canadian market is outperforming US stocks, with a majority of the top ten performers in the S&P/TSX Composite Index stemming from the gold sector. The materials sector, including miners, leads with returns exceeding 55%.
The Vaneck Gold Miners ETF has gained traction among institutions seeking temporary exposure to gold and liquidity in secondary markets, noted Tiffany Zhang from National Bank Financial.
However, even with gold miners nearing historical highs, ETFs are witnessing a third consecutive year of outflows as investors gravitate toward new themes.
“They’re losing some of their spotlight to more AI and crypto-related interests as people look for different opportunities this year,” Zhang remarked about ETF and gold stock dynamics.
While analysts aren’t predicting a drop in gold prices just yet, the same uncertainties that caused prices to rise linger on.
“It’s challenging to anticipate a continuation of such growth, especially with a general return over three years,” mused Vaneck’s Musgraves. The outlook seems to shift daily, influenced by how current administration policies respond to tariffs and trade issues.
