Gold Mining Stocks Are Surprisingly Cheap Despite Record Gold Prices

Published on: Apr 2, 2024
Author: Amy Liu

Gold mining stocks are cheap, unchallenged and have been mediocre for some time. Goldman Sachs (GS) analysts pointed out in a report at the end of March, it is expected that gold price is expected to appreciate to US$2,300 per ounce by the end of the current year, and gold price is expected to continue its upward momentum in late 2023 and early 2024. Driving factors behind this include monetary policy shifts of European and American central banks and geopolitical factors.

As gold prices rebound, are you considering investing in gold mining stocks? Now may be a good time to invest in gold mining stocks for several reasons. First, if gold price rises, gold mining stocks could rise even more. But that’s not the only reason to buy gold mining stocks. Many gold mining stocks offer dividends, which provide a source of income in addition to potential capital appreciation. Investing in gold mining stocks can provide diversification as they are typically less correlated to other assets such as stocks and bonds.

Why gold mining stocks are heating up

Higher gold prices are driven in part by gold’s safe-haven status in times of geopolitical uncertainty, which could lead to increased demand for gold and gold mining stocks. If gold sends a signal, then gold mining stocks will benefit, especially in an AI-driven market where investors have largely ignored gold mining stocks.

The VanEck Gold Miners ETF (GDX) offers fast, broad exposure to the gold mining sector without having to pick individual stocks. The ETF focuses on established gold and silver mining companies with stable cash flows, making it suitable as the core of a gold allocation.

Keep in mind that gold mining stocks are inherently volatile. As the price of gold rises and falls, the profitability of mining companies will be directly affected, leading to corresponding fluctuations in stock prices.

Investors must also consider the operational risks associated with mining companies, such as rising production costs, which can erode profitability and cause stock prices to fall. Changes in government policies, regulations, and taxes in the countries where mining operations are located can also have a significant impact on the performance of gold mining stocks. These factors may not matter in the here and now, but it is worth keeping them in mind if you are looking to make a long-term allocation to gold mining stocks.

Furthermore, the only real complicating factor is oil. Since mining is an energy-intensive industry, a spike in the oil price can offset gold price increase. The ideal scenario would be oil price falling while the gold price continues to rise.

Gold Mining Precious Metals Silver