Gold's Blowout Rally Puts Spotlight On Miners: Will They Finally Catch Up?

Gold surged to $2,760 per ounce on Jan. 22, hitting an 11-week high and eyeing its fourth consecutive weekly gain.

The rally is being fueled by mounting geopolitical tensions as Donald Trump returns to the White House, stoking fears of potential trade and diplomatic disruptions with key partners like Mexico, Canada, China, and the European Union. What makes the recent gold’s rally even more remarkable is that it's happening alongside a stronger U.S. dollar, a dynamic that traditionally weighs on gold prices.

During a VanEck webinar on Wednesday, portfolio manager Imaru Casanova highlighted a major force driving the bullion market. “Central banks are emerging as a key demand driver for gold prices,” she said, while highlighting that Western investors have largely been absent from this rally.

Seasonality is also working in gold's favor. Historically, January has been the best-performing month for the metal. Over the past 24 years, gold has averaged a 2.6% gain in January, outpacing August, the second-best month, which has returned 1.8% on average.

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Gold Miners Surge, But They're Still Playing Catch-Up

Gold miners have joined the rally, but their performance still lags behind the metal itself.

The VanEck Gold Miners ETF GDX has climbed more than 10% in January, setting up its strongest monthly performance since July 2024, when it gained nearly 12%. In relative terms, gold miners are the second best-performing stock industry in January, behind semiconductors which rallied 12%.

Yet, looking at the bigger picture, miners remain deeply undervalued relative to gold. While gold prices have soared nearly 40% since their 2011 peak, mining stocks are still trading 40% below their all-time highs.

Casanova indicated that the lack of investor interest in gold equities has been one of the main reasons miners have struggled to keep pace with gold. Even as the metal continues to reach new highs, investor demand for gold stocks has remained muted.

The expert highlighted the valuation gap between gold and miners won't last forever.

One major issue holding back miners is that Western investors have largely abandoned gold as an asset class, despite central banks aggressively buying physical gold. Casanova made it clear: “Gold stocks have not been able to keep pace with gold because central banks don't buy gold stocks, they buy gold metal.”

However, that could change in 2025. If institutional investors start returning to gold as a hedge against inflation, economic uncertainty, and geopolitical risks, mining stocks could be set for significant outperformance.

“We think market participants may no longer be able to ignore that there is a very compelling case for owning gold equities given these valuations,” Casanova said.

Historically, gold mining stocks have been a leveraged play on gold, meaning they should outperform the metal itself when prices rise. That hasn't happened this time.

Casanova said, “When gold price increases, if margins are also expanding, then the cash flow generation of these companies increases at an even lower base than the increase in the whole price.”

Despite this, gold miners are currently more profitable than ever. In 2024, gold prices averaged $2,400 per ounce, a 23% increase from 2023 levels. At the same time, cost inflation has stabilized, allowing gold producers to maintain profit margins exceeding $1,000 per ounce.

Miners Are Choosing Discipline Over Growth

Instead of focusing on aggressive expansion, mining companies have shifted toward financial discipline.

As Casanova indicated, the industry has prioritized balance sheet strength, cost control, and returning capital to shareholders through dividends and stock buybacks.

“We see a sector that is really focused on that versus just getting bigger for the sake of getting bigger. We see discipline when it comes to capital allocation, whether it's in the form of returning to investors in the form of dividends or share buybacks, or just being very disciplined with capital allocation,” she said.

That strategy has helped improve operational efficiency and extend mine life, but investors have yet to reward it.

The key question now is whether this approach will finally start attracting institutional money back into gold equities.

With gold prices holding near record highs, and geopolitical risks escalating, the stage is set for a potential shift in investor sentiment. If Western investors return to gold, mining stocks may finally deliver the outperformance that has long been expected.

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