Gold Soars, But Gold Stocks Lag: A Potential Investment Opportunity
The price of gold has recently seen extraordinary gains, yet the performance of gold stocks has not mirrored this upward trajectory. This discrepancy presents a unique opportunity for investors looking to capitalize on the catch-up trade in the precious metal’s mining sector. As gold continues its impressive ascent, the question arises: could now be the right time to invest in gold mining stocks?
Gold’s Remarkable Resurgence
Gold has been unstoppable this year and has achieved its eighth record high within a single year just recently, despite a slight pullback that followed. In 2025 alone, gold futures have surged by 11%, adding to a staggering 27% increase in 2024, marking its biggest annual rise on record.
Interestingly, the current gold rally has not been primarily fueled by traditional U.S. factors like uncertainty and inflation, even though these elements have played some role. Instead, keen observers must look internationally to grasp the full picture. A significant contributor to the current gold demand is the actions of central banks aiming to diversify their reserves out of the dollar. This trend escalated following the freezing of Russia’s central bank assets after the invasion of Ukraine. Notably, the People’s Bank of China has emerged as a substantial buyer of gold, alongside other nations such as Turkey, Russia, and Poland. Furthermore, China has permitted its insurance companies to increase their investments in gold, highlighting a broader shift in asset allocation.
Investment Demand on the Rise
The appetite for gold has surged among investors as well. According to the World Gold Council, global investment demand grew by 25% in 2024, with exchange-traded funds (ETFs) focused on gold experiencing two consecutive quarters of inflows. Demand for physical gold has notably been robust in India and China, effectively offsetting declines seen in the U.S. and Europe.
Gold Miners vs. Gold Metal: A Disparity in Performance
While gold miners have not struggled per se, their performance pales compared to the metal itself. For instance, the VanEck Gold Miners ETF (GDX), which comprises large global producers like Newmont and Barrick Gold, saw returns of just 10% in 2023 and 10.6% in 2024. In stark contrast, the SPDR Gold Shares ETF (GLD), which holds physical gold, achieved returns of 12.7% and 26.7% in the same years. However, recent data indicates a shift in 2025, with gold miners posting a return of 24% relative to the Gold ETF’s 11%. This trend suggests that there is still significant potential for further growth in gold stocks.
Profit Margins and the Catch-Up Trade
Traditionally, when the price of gold rises, the stocks of mining companies are expected to rise even more steeply. This is because mining companies’ earnings expectations tend to increase more dramatically than commodity prices, assuming their operating costs remain steady. As a result, the profit margins expand, benefitting shareholders.
Supporting this notion, analysts covering companies within the VanEck ETF have reportedly raised their 2025 earnings forecasts by an impressive 77% over the past two years, as per FactSet data. Despite this optimistic outlook, mining stocks have not yet caught up with the increased earnings potential, leaving room for a significant catch-up trade. If these stocks merely aligned with earnings, the ETF could trade around $51, representing a 23% increase over its recent price of $41.47.
Analyst Insights and Valuations
According to Bhawana Chhabra, a senior market strategist at Rosenberg Research, gold miners are presently underappreciated equity opportunities. “Underpinned by strong fundamentals and comfortable valuations,” she notes that this sector holds a compelling risk-reward profile.
Despite recent gains, many gold mining stocks remain attractively priced. Currently, the VanEck ETF trades at just over 12 times its 12-month forward earnings, revealing a striking 44% discount compared to the S&P 500’s 22 times. This differential is far wider than the 10-year average, which typically hovers around 20%. Should the price/earnings ratio return to this average level, the ETF could rise to over 16 times earnings, positioning it at approximately $51 per share.
The Bottom Line: Will Gold Stocks Shine?
All that remains for gold mining stocks is for investors to regain confidence that gold prices will maintain their current levels or rise further. With gold inching closer to the $3,000-an-ounce milestone, the market sentiment appears to be shifting. As the stocks begin their upward momentum, it’s likely that investors may be willing to pay premium multiples to own them. If gold has been a star, the time is ripe for gold mining stocks to bask in the spotlight.
