In recent years, gold has re-emerged as a preferred safe-haven investment amid rising inflation, geopolitical tensions, and waning confidence in traditional fiat currencies. Since the onset of the pandemic, the price of gold has surged dramatically—from approximately $1,600 per ounce to nearly $3,500 per ounce. However, this remarkable price increase has not been mirrored by a corresponding rise in gold mining stocks, a divergence that has attracted significant attention within capital markets.
Why Haven’t Gold Stocks Kept Pace?
Tom Winmill, portfolio manager at Midas Funds, explains that until mid-2024, gold producers were grappling with persistent structural challenges. Increasing energy costs and higher prices for essential materials have pushed the average all-in sustaining cost of gold mining from $950 to $1,300 per ounce. Additionally, supply chain disruptions, delays in equipment shipments, and labor shortages at mining operations further escalated production expenses. These factors combined have caused operational costs to rise faster than gold prices, severely compressing mining companies’ profit margins.
Winmill adds that, as commodity producers, gold miners are price takers and cannot add additional value to the metal they extract. This cost pressure has been a major factor limiting gold stocks from fully benefiting from the surge in gold prices over the long term.
Is Now the Time to Invest in Gold Stocks?
Sustained large-scale gold purchases by central banks—particularly China—have provided strong support for gold prices, helping push them to record highs. Meanwhile, U.S. financial sanctions on Russia, along with ongoing concerns over political instability, currency depreciation, and expanding fiscal deficits worldwide, have further fueled investor demand for gold.
Winmill highlights the metal’s enduring appeal: “Three thousand years of history prove there is always a stable buyer for gold,” a factor that continues to strengthen market confidence.
With gold prices climbing, producers’ profit margins are finally expanding, making gold stocks more attractive to investors. “In my 25 years managing gold funds, I have never seen such generous profit margins,” Winmill says. “When production costs stabilize between $1,600 and $1,800 per ounce and gold prices exceed $3,400, almost all the difference translates into pure profit.”
Key Considerations for Investors in Gold Stocks
Winmill advises investors to carefully evaluate several critical factors when selecting gold stocks:
Risk Management: Many gold companies operate in politically unstable regions, exposing them to sovereignty risk. Sovereignty risk insurance has become essential in mitigating these vulnerabilities.
Cash Flow Strength: Companies with robust free cash flow are better positioned to withstand market downturns, while those lacking sufficient reserves may deteriorate quickly.
Management Quality: Experienced and well-balanced management teams are crucial to successfully navigating the complexities of mine development and operations.
Beyond direct investment in individual gold stocks, Winmill recommends considering diversified exposure through gold funds. Mutual funds that hold multiple mining stocks allow investors to spread risk and benefit from professional management. Fund managers, equipped with long-term market research and project analysis, can swiftly capitalize on opportunities created by rising gold prices, delivering sustained value growth.
