Gold mining companies are set to report their best quarterly financial performance in history, breaking all records! With gold prices hitting historic highs and mining costs remaining stable or even declining, profits are expected to skyrocket. Yet, gold stocks continue to trade at valuations far below their actual earnings potential and the current value of gold, creating an extreme valuation anomaly.
The upcoming stellar Q4 2024 and full-year financial results are poised to reignite investor interest in gold mining stocks.
Earnings seasons serve as crucial reality checks for stock prices, helping investors cut through market sentiment and gain a clear picture of companies’ actual performance. Since most companies operate on a calendar year, Q4 earnings reports typically include more comprehensive annual data. However, this added detail also leads to delayed reporting.
Generally, U.S. and Canadian-listed companies are required to disclose full quarterly results within 40 to 45 days after a quarter ends. Yet, for Q4, which also wraps up the fiscal year, reporting deadlines are extended to 60 to 90 days.
In Q4 2024, gold’s average closing price skyrocketed to $2,661 per ounce, a record high and a stunning 34.7% year-over-year (YoY) increase, marking the largest gain in the past 34 quarters. Such soaring gold prices will undoubtedly amplify profitability across the gold mining sector.
The preferred metric for assessing the sector’s profitability is the “implied unit profit”, calculated as the quarterly average gold price minus the industry’s average All-In Sustaining Costs (AISC) per ounce. This measure is more representative of long-term profitability trends compared to net income or earnings per share (EPS), which can be skewed by accounting adjustments.
In the past five quarters, the top 25 GDX companies reported an average AISC of $1,317 per ounce. As increased production has helped spread fixed mining costs, many gold miners forecasted in Q3 2024 that their Q4 AISCs would be the lowest of the year. Conservatively estimating a Q4 2024 AISC of $1,350, and pairing that with the record-high gold price of $2,661, the implied unit profit rises to a staggering $1,311 per ounce. This represents an explosive 98.8% YoY growth, nearly doubling profits!
Despite this unprecedented growth in sector profitability, gold stocks have significantly lagged behind. Over the past six quarters, while the implied unit profits of the top 25 GDX miners soared 119%, the average price of GDX stocks rose only 17.7%. Put simply, stock prices have increased by just one-seventh of profit growth!
This extreme valuation anomaly cannot persist indefinitely—stock prices inevitably realign with earnings over time.
Institutional investors, particularly fundamentally driven fund managers, are likely to become a major force behind the sector’s recovery. Once it becomes evident that gold mining stocks are severely undervalued, capital inflows are expected to surge. This influx of funding could ignite a positive feedback loop, where rising prices attract more buyers, further driving up valuations. From a technical perspective, GDX is currently nearing a significant price breakout level, which could accelerate gains in the sector.
Looking back at history, the current gold stock performance bears similarities to the 2020 mid-year gold bull market. At that time, gold prices climbed 40% in just a few months, while the GDX surged 134%, representing a healthy 3.4x leverage to gold’s movement. By contrast, over the past 12.6 months, GDX has risen 70.2%, but with gold growing by 53.1%, the leverage ratio has been just 1.3x—well below historical norms.
As gold miners continue to report exceptional financial results, GDX could finally enter a new phase of revaluation.
As 2025 begins, gold has already broken out of its consolidation phase and is back on its growth trajectory. This bullish trend is not only drawing institutional interest but also beginning to attract retail investors. Over the long term, the sustained high gold prices are making the gold mining sector’s profitability more durable, making a fundamental revaluation of gold stocks a likely outcome.
By all indications, 2025 may mark a pivotal year for gold mining stocks, as exceptional financial results and undervaluation draw renewed attention to the sector.
