The Flight to Gold

When gold rises, miners can rise faster...

GOLD MINING equities are having a blockbuster 2025, writes Frank Holmes at US Global Investors.

Prices for the precious metal have hit one all-time high after another, and the miners who pull it from the ground are rewarding investors with some of the best returns in the market today.

I've rarely seen such a powerful convergence of factors favoring this industry. From central bank buying to political uncertainty to disciplined corporate behavior, everything appears to be lining up for gold and the miners who produce it.

In the first week of September, the metal recorded its sixth fresh record high in just seven trading days. Having surpassed its inflation-adjusted record, set in 1980, gold has made all-time highs not just in US Dollars but in Euros, Pounds, Yuan and nearly every major currency.

What's driving this? In short, fear and uncertainty. Central banks around the world have been consistent buyers, topping up their reserves with bullion in record amounts. Gold-backed ETFs have seen nearly $50 billion in inflows so far this year, their second-strongest run on record, according to the World Gold Council (WGC).

Ray Dalio, the legendary founder of Bridgewater Associates, put it plainly this month: A well-diversified portfolio should have 10–15% in gold, which exceeds my own recommendation of 10%. He likens US debt to plaque clogging an artery, warning that a financial "heart attack" may be looming. Gold, he says, could be an antidote.

While gold has stolen the spotlight, silver is staging its own rally, up more than 40% this year and trading at 14-year highs. Some analysts predict it could reach $100 an ounce, driven by both investor demand and industrial applications in solar panels and electronics. For those who like leverage on leverage, silver mining equities could offer even more torque.

As I've pointed out many times before, when gold rises, miners tend to rise faster. That's because their costs are relatively fixed: Once you've paid to dig, crush and process ore, the value of each extra ounce flows straight to the bottom line. At $1,800 gold, many mines were just scraping by. At $3,600 gold, they're minting money.

Consider the numbers. Average all-in sustaining costs (AISC) for major producers hover between $1,080 and $1,220 per ounce. With spot prices more than triple that, the margins are extraordinary.

It's no wonder, then, that mining indices have exploded. The NYSE Arca Gold Miners Index hit a new all-time high last month, surpassing levels last seen in 2011. Individual names like Sibanye-Stillwater, AngloGold Ashanti and Gold Fields have each gained more than 150% year-to-date, while SSR Mining has risen an extraordinary +220%.

Veteran investors might remember past gold bull markets where companies, flush with cash, chased growth at any cost. They spent recklessly on acquisitions, overbuilt mines and diluted shareholders. Not this time.

In 2025, miners are showing discipline. Management teams are focused on operational efficiency, strong balance sheets and shareholder returns. They're channeling cash into dividends and buybacks. Free cash flow has surged across the industry, and return on invested capital is at multi-year highs.

This new culture of restraint makes the current rally very different from the last one. The fundamentals are healthier, and balance sheets are stronger.

We can't ignore the broader macroeconomic backdrop. The US economy is showing unmistakable signs of strain.

The Labor Department recently revised job growth lower by 911,000 positions through March, the largest adjustment in more than two decades. The country now has more unemployed workers than job openings for the first time since 2021. Consumer inflation remains sticky at 2.9%, even as wholesale prices briefly dipped.

Economists warn the economy could tip into recession by year-end. JPMorgan CEO Jamie Dimon says he thinks the economy is "weakening", while Moody's chief economist Mark Zandi, who forecast the 2008 financial crisis, expresses concern about stagflation, describing it as "pernicious".

Layer onto this the political noise. President Trump's moves to exert control over the Federal Reserve − such as efforts to oust Governor Lisa Cook − have many investors on edge. Goldman Sachs warns that if Fed independence is compromised and just 1% of the $27 trillion Treasury market flows into gold, the price could soar to $5,000 per ounce.

Gold is on fire. It's making new records in nearly every currency, fueled by central banks, ETFs and private investors.

Miners are leveraged winners right now. With costs around $1,100 and gold above $3,600, margins are the fattest in decades. Again, I recommend a 10% weighting, with 5% in physical bullion and the other 5% in high-quality gold mining equities. Rebalance on a regular basis.

As the old saying goes, "Don't wait to buy gold. Buy gold and wait." And don't overlook the miners. They're striking it rich and bringing shareholders along for the ride.