Gold mining stocks, as tracked by the VanEck Gold Miners ETF (NYSE:GDX), extended their winning streak on Tuesday to nine consecutive sessions, reaching their highest levels since August 2020.
This marks the longest run of gains for gold miners in over three years, driven by strong investor demand and record-high gold prices.
Gold prices climbed another 0.9% to $2,744 per ounce Tuesday, further extending record highs and boosting sentiment around precious metals.
“Today is a good a time to add exposure to gold,” which should be “a core component, not a tactical piece,” of a diversified portfolio, said Imaru Casanova, portfolio manager for gold and precious metals at VanEck, during a webinar for clients on Tuesday.
Casanova stressed gold should be a permanent allocation, particularly in the current environment of rising geopolitical and economic risks.
Gold Miners Reach Early-August 2020 Levels, Aim for Record Highs
Key Drivers For Gold's Rally: Geopolitics and U.S. Economic Policies
The expert highlighted several factors driving the gold rally including “Black Swan” events such as 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 said.
Casanova also added that a key driver for gold in this environment is represented by the Fed cutting interest rates and expansionary fiscal policies which “could be inflationary and could potentially bring us into the next wave of higher inflation.”
Historically, gold has performed well during rate-cutting cycles, returning an average of 25% over 500 trading days in the past three cycles.
She also indicated that central banks, particularly China, have been significant buyers of gold as they seek to reduce dependence on the U.S. dollar and diversify reserves.
Gold Miners Benefit from Higher Margins
Casanova pointed out that gold miners are benefiting from record margins, despite rising production costs due to inflation.
A 20% increase in gold prices typically translates into a 50% improvement in mining margins, which is driving profitability in the sector.
According to the expert, miners are trading at historically low valuations, even as they enjoy expanded margins and solid financial health
Investment Opportunity in Gold Miners
In addition to direct gold investments, Casanova emphasized that gold mining stocks offer an attractive vehicle for investors to gain exposure to rising gold prices.
“If the gold price is going to go higher, then so should the miners,” she said, noting that the sector’s financial discipline, responsible capital allocation, and strong balance sheets position it for further gains.
With improving free cash flow and balance sheet strength, Casanova expects a re-rating of gold mining stocks as investors recognize the sector’s potential for higher valuation multiples.
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