Should You Invest in Gold Miners or Gold Itself? A Pragmatic Approach for Serious Investors
As 2025 unfolds, gold has continued its ascent, recently breaking through the pivotal $3,000 mark, bringing renewed attention to both the precious metal and its associated mining stocks. This surge has highlighted the performance differential between exchange-traded funds (ETFs) focused on gold mining and those targeting the physical metal. With investment decisions becoming more nuanced, serious investors must consider whether to invest directly in gold or to delve into the realm of gold mining stocks—and which vehicles will provide the best returns.
The Current Landscape of Gold Investment
The gold market has seen significant momentum this year, led by ETFs that track companies engaged in gold mining and exploration. Notably, the VanEck Gold Miners ETF (GDX) has increased by over 32% in 2025, while the VanEck Junior Gold Miners ETF (GDXJ) and iShares MSCI Global Gold Miners ETF (RING) have also shown strong returns of around 30% and 33%, respectively. Meanwhile, traditional funds that provide exposure to physical bullion, like the SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), have only risen approximately 15.5%—a stark reflection of the potential upside available through mining equities.
Factors Influencing Gold Prices and Mining Stocks
Various macroeconomic elements have contributed to the price of gold, chiefly concerns around tariffs, trade disputes, and a slowing economy. As Chris Mancini, a metals and mining analyst at Gabelli Asset Management, notes, conditions are currently unsettled and could lead to further monetary easing by the Federal Reserve. Such monetary policy could serve to support gold prices long-term.
It’s worth noting that despite the upward trajectory of gold over the past few years, shares of gold miners historically lagged behind the price of the yellow metal. However, analysts now believe that 2025 could mark a turning point for gold mining equities, presenting an attractive opportunity for investors. Steve Schoffstall from Sprott Asset Management points out that gold-mining stocks offer not only exposure to gold but the potential for dividend income, along with some leverage to safe-haven assets.
The Case for Gold Mining Stocks
Investing in gold-mining companies could be especially appealing given that these firms may not require gold prices to rise for their stocks to perform well. Over the last five years, mining stocks have demonstrated a significant divergence in performance, ranging from strong returns to substantial underperformance. This variance underscores the need for an active investment approach to select high-potential mining equities.
Data indicates that earnings-per-share estimates for gold miners have experienced noteworthy revisions, climbing around 67% and 99% for 2025 and 2026, respectively. Critically, these companies currently trade at about 40% of the valuation of the broader S&P 500 index, suggesting that they could be undervalued in the current market.
Assessing Risks and Rewards
However, potential investors should proceed with caution. The market for gold mining stocks is not without its risks. Schoffstall notes that equity risk must be carefully considered—particularly in broader market downturns, where gold miners may be adversely affected despite their intrinsic value.
Additionally, it is essential to recognize that most gold mining firms are not purely focused on gold. Companies like Newmont Corporation (NEM) are diversified, engaging in the extraction of other metals such as copper, silver, zinc, and lead, which further complicates the decision-making process for investors.
New Opportunities: Actively Managed ETFs
The introduction of actively managed funds, such as the Sprott Active Gold and Silver Miners ETF (GBUG), signifies a strategic shift toward more dynamic investment strategies within the sector. This fund aims to invest in companies that earn at least 50% of their revenue from gold or silver, enhancing the focus on targeted investment opportunities. However, investors should remain cognizant of the associated expense ratios, which vary among different ETFs—e.g., GBUG has an expense ratio of 89 basis points compared to 51 basis points for GDX and 40 basis points for GLD.
Conclusion: Making Informed Choices
In conclusion, the decision to invest in gold miners versus gold itself boils down to individual financial goals, market outlook, and risk tolerance. Those seeking exposure to gold alongside the benefits of equity investing may find gold mining stocks to present a compelling case, especially in an environment where macroeconomic factors continue to inject volatility into financial markets. On the other hand, traditional bullion investments may provide a more cautious, stable option amidst rising uncertainty. Each investor must carefully weigh these considerations and align them with their broader investment strategy.
