Over recent years, gold has solidified its status as a safe-haven asset amid inflation, geopolitical tensions, and growing distrust in traditional fiat currencies. Since the pandemic began, gold prices have climbed from roughly $1,600 per ounce to nearly $3,500, largely driven by unprecedented central bank purchases, especially from China. Yet, despite this remarkable price rally, gold equities have lagged behind.
Tom Winmill, portfolio manager at Midas Funds, explains to the Investing News Network why gold stocks have stalled and why the current environment presents a prime opportunity for investors.
Why Have Gold Stocks Lagged?
Until mid-2024, many gold producers faced significant structural hurdles, primarily soaring costs. Between 2020 and 2023, all-in sustaining costs for gold production jumped from $950 to $1,300 per ounce. Rising energy prices, supply chain delays, labor shortages, and increased wages to retain skilled workers all contributed to higher operational expenses. Additionally, reliance on computer-controlled mining equipment faced setbacks due to semiconductor shortages.
“Producers are price takers,” Winmill notes. “They can’t influence the price they get for gold. Costs outpaced prices, squeezing profitability.”
Is Now the Time to Invest in Gold Stocks?
Central banks, notably China, have accelerated gold accumulation in response to geopolitical uncertainties such as sanctions on Russia and global financial instability. China has added over 1,000 metric tons of gold to its reserves since 2022, viewing gold as a safeguard against currency devaluation and political risks.
“This has created unprecedented momentum,” Winmill says. The surge in gold prices, reaching historic highs in 2024, coincided with renewed western investor interest amid trade policy uncertainties.
With production costs now stabilizing between $1,600 and $1,800 per ounce, while gold trades above $3,400, profit margins have expanded significantly. “That gap translates into pure profit,” Winmill adds.
What to Look for When Investing in Gold Stocks
Investors should be aware of risks such as operating in politically unstable regions. To mitigate this, some companies use sovereignty risk insurance to protect investments from government expropriation.
Winmill advises avoiding companies without free cash flow, as consistent cash flow allows a company to sustain and grow over time. He also stresses the importance of experienced management teams balanced between geological insight and financial discipline.
“There are only a handful of companies that meet criteria for cash flow, solid management, high-quality deposits, and manageable political risk,” he notes.
Mitigating Risk Through Funds and Royalties
For investors seeking diversification and professional oversight, mutual funds like Midas Discovery offer exposure to top holdings such as Agnico Eagle, Lundin Gold, and Northern Star Resources. These funds provide the benefit of continuous research and a diversified portfolio.
Additionally, royalty companies can offer attractive upside with lower operational risks, making them an appealing option amid rising gold prices.
