GOLD performed impressively over the course of 2024, rising sharply in the early weeks of 2025 to hit an all-time high. This was driven by strong physical demand and its role as a safe haven against uncertainties. Our outlook for 2025 remains constructive.
In this environment, investors may wonder whether exposure to gold mining equities, which outperformed gold for long periods in 2024, might be equally attractive. Both gold and gold miners are attractive, in our view. Despite many similarities, there are also differences to consider before making an investment decision.
Physical gold
At the start of 2024, gold traded at around US$2,060 per troy ounce and reached a record high of around US$2,800 in early 2025. Last year’s rally was largely driven by expectations of falling inflation and sharp rate cuts by the US Federal Reserve. As gold does not pay interest, falling interest rates supports its price, while rising rates increase the opportunity cost of holding gold.
Other factors also drive gold’s positive performance, such as concerns about the US budget deficit under the new US administration, central bank reserves’ diversification into gold (especially by the Chinese and other emerging market central banks), hedging against stubborn inflation and geopolitical instabilities.
Central bank activity has been a key factor behind rising prices, with increased purchases of gold bars for reserve management. For some central banks, de-dollarisation and protection against sanctions play an important role. Notably, many monetary authorities’ efforts to increase gold reserves appear unrelated to the strength of the US economy, US equity markets, or fluctuations in the US dollar and interest rates.
In the long run, monetary supply growth influences gold prices. There is a clear correlation between US money supply growth and gold prices, with price gains accelerating during rapid money supply growth. While short-term direction of the gold price cannot be predicted by money supply, it may indicate likely future trends.
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Investor interest in gold ETFs (exchange traded funds) also played an important role. Global demand increased in 2024, recording its first net annual inflow in four years with assets under management in physically-backed gold ETFs climbing by 26 per cent to US$271 billion. According to the World Gold Council, Asia recorded the highest inflows. North American ETFs recorded their first positive annual inflows since 2020 while European outflows fell significantly compared to 2023.
Several factors make us optimistic about gold’s future performance. We expect central banks to continue to buy gold, albeit at a somewhat lower rate, which will provide support and should attract price-conscious investors. President Trump’s economic and trade policies could provoke market jitters, increasing interest in gold. The Federal Reserve is likely to continue cutting interest rates, albeit at a slower pace. Other supportive factors include continued monetary expansion, concerns about rising budget deficits due very loose global fiscal policies, and the trend towards de-dollarisation, particularly in emerging markets.
Gold mining stocks
At first glance, gold miners’ shares appear to be an attractive alternative to investing in physical gold for those wanting indirect exposure to gold, while also securing share performance. Gold mining investments are seen as a leveraged investment in gold, but with generally much higher volatility.
Unlike physical commodities, mining companies generate profits and cash flows, benefitting investors. With higher profit margins, we see mining stocks offering a cheaply valued growth opportunity. However, new gold deposits discoveries have declined significantly in recent decades, raising the barriers to exploration where mining companies have to make substantial investments.
While high debt levels of mining companies have raised concerns in recent years, many listed gold mining companies have improved debt ratios and balance sheets, and profit margins have been exceptionally high thanks to rising gold price. Whether all companies have invested in the development of new gold deposits remains uncertain and this could hinder production growth. Mergers and acquisitions could trigger a wave of consolidation where larger and more powerful mining companies may seek to acquire smaller, exploration-focused competitors or consolidate existing operations.
The focus when selecting companies should be on whether the mine operators are established, have invested in securing future production and demonstrate a track record of cost control and consistent performance – factors considered in all equity investments.
Mining royalty companies
There are also mining companies that specialise solely in licensing mining projects, generating income without building mines or operating machinery. They focus on generating royalties from a variety of mining projects for a stable income without being exposed to the operational difficulties of traditional mining companies.
Traditional mining companies have huge capital costs across their operations unlike mining or streaming companies which tend to be passive royalty payers. They negotiate contracts that entitle them to a share of the revenues or the extracted commodity once the mine is operational. This distinction is crucial from an investor’s risk perspective.
In adverse market conditions, royalty companies also suffer but their costs are much lower. They fill a specific financing need, providing viable options for the mine operators reluctant to raise equity or take on significant debt. Mining royalty companies are now an important sub-sector within the sector.
The outlook for gold miners looks positive, seemingly out of a period of rapidly rising costs. Thus, we expect these companies’ margins to remain solid with continued benefits to cash flow returns, given that gold prices are so high. Major miners’ current valuations also suggest further upside potential. Gold mining stocks continue to offer growth potential independent of gold prices. Unlike miners, physical gold does not pay dividends or interest and cannot grow through business expansion or efficiency gains.
Nevertheless, investors should not view gold mining equities as a simple “leveraged gold investment”. Company-specific risks and the general hazards and uncertainties associated with mining operations can lead to increased volatility in the securities. A sharp drop in gold prices could also have a negative impact, exacerbated by the stocks’ leveraged effect.
Gold and mining stocks are welcome
The current drivers of the gold price should remain, giving gold the potential to perform well in 2025, especially with easing inflation and falling interest rates.
We are also constructive on gold miners. However, history shows that such stocks are not always the better choice due to inherent risks. The advantages are only clear in a theoretical case of a gold ban.
Ultimately, a good mix of gold and mining stocks might allow investors to enjoy the benefits of both assets, without being fully exposed to either and their associated risks.
The writer is chief investment officer, DWS Group