2025-11-11
Digging Up a Fortune?
Gold’s meteoric rise in price this year has finally come to a halt, but at an elevated price compared with a year ago. An alternative to buying the metal itself is to invest in the companies that mine it.
There is a category of stock that has significantly outperformed that of tech firms linked to the artificial intelligence (AI) boom in 2025.
There is a category of stock that has significantly outperformed that of tech firms linked to the artificial intelligence (AI) boom in 2025.
While Nvidia’s share price was up around 40% and Oracle’s 72% by mid-October, the listed company Newmont had gained 134%, Agnico Eagle increased 113% while newcomer to the stock market Zijin doubled in value after its IPO at the end of September.
These three less-familiar names are all gold mining companies. The S&P Global Gold Mining Index has increased by over 120% this year.
The lustrous metal itself has dazzled humans for millennia, and naturally attracts more attention than the often messy, difficult process in mining this precious metal. Companies that are specialist in the extractive process have not always delighted investors, but that may be changing.
The traditional downsides to buying gold as a commodity have been that there are no dividends or potential for earnings growth.
These three less-familiar names are all gold mining companies. The S&P Global Gold Mining Index has increased by over 120% this year.
The lustrous metal itself has dazzled humans for millennia, and naturally attracts more attention than the often messy, difficult process in mining this precious metal. Companies that are specialist in the extractive process have not always delighted investors, but that may be changing.
The traditional downsides to buying gold as a commodity have been that there are no dividends or potential for earnings growth.
Moreover, there are fees; either to cover the security needed to storing physical gold, or the commission for trading gold-linked exchange trade funds (ETFs).
With the companies that mine the gold, they have been able to pay dividends following the recent gold rush.
The rise in share prices of gold mining companies has been around double that of the price of gold itself, which has risen by around 50% in 2025, reaching more than $4,300 per ounce in mid-October, before dipping back to below $4,000 by the end of the month. As recently as early 2024, it was trading at $2,000.
Buying stocks in gold mining is a levered bet on the price of gold: there are high costs, but these do not vary significantly with demand.
With the companies that mine the gold, they have been able to pay dividends following the recent gold rush.
The rise in share prices of gold mining companies has been around double that of the price of gold itself, which has risen by around 50% in 2025, reaching more than $4,300 per ounce in mid-October, before dipping back to below $4,000 by the end of the month. As recently as early 2024, it was trading at $2,000.
Buying stocks in gold mining is a levered bet on the price of gold: there are high costs, but these do not vary significantly with demand.
So margins are overly suppressed with a low price, and disproportionately boosted when the global price rises.
There are, however, bad memories for some investors who have invested in gold mining sector. A previous price rise followed the banking crisis of 2007-08, but this was followed by loose fiscal discipline in the sector, high CEO pay, risky mergers and ambitious mining projects which left some miners exposed when the gold price fell – from above $1,500 in 2012 to below $1,100 in 2015. Gold sector stock prices fell 79% between 2011 and 2015.
There are indications that the mature companies in the sector have learned the lesson, building up their cash position in the current boom, paying dividends and exercising conservative judgement. Free cash flow yields this year have reached the range 7-9%.
There was a boost to the gold price in 2020 during the Covid pandemic, but the industry’s inflation level also rose, owing to disrupted supply chains. Inflation is now subdued. Costs have risen but at a much lower rate than the increase in price.
Bolstering support for the sector further is that, while the global gold price may fall – indeed, it is already off its highs – it is unlikely to collapse. While it is often regarded as a safe haven stock, to hedge against inflation, geopolitical uncertainty and the declining value of paper money, this has been only a partial explanation this year. The gold price continued to rise in price while the value of the dollar was holding steady, not falling.
Historically, gold prices would move in approximately inverse relationship to stock prices, but in 2025 they have been rising together.
There are, however, bad memories for some investors who have invested in gold mining sector. A previous price rise followed the banking crisis of 2007-08, but this was followed by loose fiscal discipline in the sector, high CEO pay, risky mergers and ambitious mining projects which left some miners exposed when the gold price fell – from above $1,500 in 2012 to below $1,100 in 2015. Gold sector stock prices fell 79% between 2011 and 2015.
There are indications that the mature companies in the sector have learned the lesson, building up their cash position in the current boom, paying dividends and exercising conservative judgement. Free cash flow yields this year have reached the range 7-9%.
There was a boost to the gold price in 2020 during the Covid pandemic, but the industry’s inflation level also rose, owing to disrupted supply chains. Inflation is now subdued. Costs have risen but at a much lower rate than the increase in price.
Bolstering support for the sector further is that, while the global gold price may fall – indeed, it is already off its highs – it is unlikely to collapse. While it is often regarded as a safe haven stock, to hedge against inflation, geopolitical uncertainty and the declining value of paper money, this has been only a partial explanation this year. The gold price continued to rise in price while the value of the dollar was holding steady, not falling.
Historically, gold prices would move in approximately inverse relationship to stock prices, but in 2025 they have been rising together.
The prices of silver and platinum have also increased. These are not traditional hedges against declining faith in fiat currencies. Silver began the year at around $30 per ounce, rose to nearly $55 by October, before falling to $45-46.
Elevated global liquidity, and the rise of retail investing, featuring market trading apps, have been contributory factors. InvestEngine, a platform for retail investors, has reported a 250% increase in purchases of gold exchange traded commodities in 2025.
Elevated global liquidity, and the rise of retail investing, featuring market trading apps, have been contributory factors. InvestEngine, a platform for retail investors, has reported a 250% increase in purchases of gold exchange traded commodities in 2025.
The exchange traded fund share of all gold demand has increased to nearly 20%.
With an ETF, you do not own physical gold, but rather shares in a gold fund, where each ETF unit typically equals 1gram of 99.5% pure gold. The ETFs are more liquid than gold itself. It is possible to trade in leveraged ETFs linked to gold, which use borrowing to amplify the returns, but leveraging can also compound the losses when prices fall.
Governments have continued to build their gold reserves, as a diversification away from the US dollar. The Chinese government now holds 74mn troy ounces, worth around $283bn. It has not been selling at what may be the top of the market. For governments, purchasing significant gold reserves is a strategic holding, not a speculative bet.
Gold is likely to remain a significant minority proportion of a diversified portfolio. Gold miners, provided that they avoid over-reach and conserve cash during the boom times, may also be a credible long-term investment.
With an ETF, you do not own physical gold, but rather shares in a gold fund, where each ETF unit typically equals 1gram of 99.5% pure gold. The ETFs are more liquid than gold itself. It is possible to trade in leveraged ETFs linked to gold, which use borrowing to amplify the returns, but leveraging can also compound the losses when prices fall.
Governments have continued to build their gold reserves, as a diversification away from the US dollar. The Chinese government now holds 74mn troy ounces, worth around $283bn. It has not been selling at what may be the top of the market. For governments, purchasing significant gold reserves is a strategic holding, not a speculative bet.
Gold is likely to remain a significant minority proportion of a diversified portfolio. Gold miners, provided that they avoid over-reach and conserve cash during the boom times, may also be a credible long-term investment.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.
Source: GULF TIMES