Gold holds firm as goldminers regain momentum

As tensions around the conflict eased and US trade negotiations evolved throughout the month, equity markets rebounded, supported by strong corporate earnings that bolstered investor confidence. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average indices all closed at record highs on June 30. While gold was pressured by this shift in sentiment, it remained resilient, closing at US$3,303.14 per ounce on June 30, a modest monthly gain of US$13.89 per ounce (0.42%).

Gold stocks outperform despite flat metal prices

Gold mining equities, as represented by the NYSE Arca Gold Miners Index (GDMNTR), once again managed to post a gain (up 3.03% in June), despite gold’s flat performance and the broader equities’ strong recovery. In both 2023 and 2024, whenever gold prices drifted sideways without much momentum, gold equities tended to experience sharp declines (see charts below). This downturn also corresponded with declining investor interest in gold, as evidenced by outflows out of the gold bullion ETFs.

Source: Bloomberg. Past performance is no guarantee of future results. Index performance is not representative of strategy performance. It is not possible to invest in an index.

Source: Bloomberg. Past performance is no guarantee of future results. Index performance is not representative of strategy performance. It is not possible to invest in an index.

It is encouraging to see gold equities outperforming the metal since mid-April, despite flat gold prices over the same period.

Source: Bloomberg. Past performance is no guarantee of future results. Index performance is not representative of strategy performance. It is not possible to invest in an index.

Why gold equities are gaining momentum

Gold equities’ outperformance makes sense to us. Gold companies are realising record margins at current gold prices—they do not require higher gold prices to continue to deliver strong free cash flow, and with average all-in sustaining costs for the sector at around US$1,600 per ounce, they can stay profitable at a gold price much lower than the spot price today.

We believe another factor providing support for gold equities this year is western investment demand once again acting as an important driver of gold prices—unlike in 2023 and 2024 when central bank demand acted as the main driver. Central banks and Asian investors do not buy gold equities, but western investors do. Their return to the gold markets should continue to support a re-rating of the gold mining sector.

Despite their strong performance so far this year, gold equities are still trading at historically low valuations. Scotiabank estimates that for their universe of senior gold producers, current stock prices, on average, reflect a 30% discount to spot gold prices. Thus, continued outperformance of gold stocks relative to the metal, even in a flat gold price environment, is justified in our view. Meanwhile, the small-cap or junior gold mining companies, which have lagged gold and the larger companies in recent years, appear to be staging a comeback.