Gold mining stocks, as tracked by the VanEck Gold Miners ETF (GDX), have been on a hot streak, extending their winning streak to nine consecutive sessions on Tuesday. This marks the longest run of gains for gold miners in over three years, propelling them to their highest levels since August 2020. The surge in gold mining stocks is fueled by a perfect storm of bullish factors: strong investor demand and record-high gold prices. Gold prices themselves climbed another 0.9% on Tuesday, reaching a new peak of $2,744 per ounce, further bolstering the positive sentiment surrounding precious metals.
“Today is a good time to add exposure to gold,” advised Imaru Casanova, portfolio manager for gold and precious metals at VanEck, during a webinar for clients on Tuesday. She emphasized that gold should be viewed as “a core component, not a tactical piece” of any well-diversified investment portfolio. Casanova underscored the importance of gold as a permanent allocation, particularly in the face of rising geopolitical and economic uncertainties.
Casanova highlighted several factors driving the gold rally, including what she termed “Black Swan” events like Russia’s invasion of Ukraine, the 2023 U.S. banking crisis, and the recent Hamas attack on Israel. “Unfortunately geopolitical risk today seems to be getting worse every day. And so that obviously will continue to support gold,” she stated.
Casanova also pointed to the Federal Reserve’s interest rate cuts and expansionary fiscal policies as key drivers for gold in this environment. These policies, she explained, “could be inflationary and could potentially bring us into the next wave of higher inflation.” Historically, gold has demonstrated strong performance during rate-cutting cycles, delivering an average return of 25% over 500 trading days in the past three cycles.
Adding to the bullish narrative, Casanova highlighted the role of central banks, particularly China, as significant buyers of gold. This move is driven by a desire to reduce dependence on the U.S. dollar and diversify their reserves.
Beyond the direct appeal of gold, Casanova emphasized that gold mining stocks offer a compelling avenue for investors to gain exposure to rising gold prices. “If the gold price is going to go higher, then so should the miners,” she asserted, noting that the sector’s strong financial discipline, responsible capital allocation, and robust balance sheets position it for further gains.
Gold miners are also benefiting from record margins, despite rising production costs fueled by inflation. A 20% increase in gold prices typically translates into a 50% improvement in mining margins, driving profitability in the sector. According to Casanova, miners are currently trading at historically low valuations, even as they enjoy expanded margins and solid financial health.
With improving free cash flow and balance sheet strength, Casanova anticipates a re-rating of gold mining stocks as investors recognize the sector’s potential for higher valuation multiples.
