With gold trading near record highs at $3,121.74 an ounce, investors are once again turning their attention to gold miners.
And for good reason: while the metal itself has surged on fears of geopolitical conflict and a potential trade war-induced recession, mining stocks (which often lag the gold price) are starting to catch up.
UBS says the sector is finally showing signs of life. The GDX Index of global gold miners has outperformed the gold price by around 20% so far this year, a marked shift from the underperformance seen over the past decade.
However, the Swiss bank urges caution. The sector has a long history of missing production targets, struggling with cost inflation and failing to generate value from acquisitions. Trust, in short, still needs rebuilding.
That said, the backdrop remains supportive. UBS expects upward revisions to earnings forecasts in the coming weeks as analysts factor in higher gold prices.
This could lift sentiment and help push valuations back toward their historical averages. The sector still looks cheap by some metrics, trading at roughly a 30% discount to its 2019 price-to-earnings ratio.
For UK investors, Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) is worth watching. The London-listed miner had a tough 2024 but is now at what UBS calls a “free cash flow inflexion point”.
With production increasing, capital expenditure falling and gold prices elevated, the group could rapidly pay down debt and resume shareholder returns. The Assafou project in Côte d’Ivoire also offers medium-term growth potential.
Among global names, UBS favours Barrick Gold, Northern Star and streaming royalty company Franco-Nevada.
Barrick offers good value, with its operational risks already priced in, while Northern Star has strong growth potential once its De Grey acquisition settles. Franco-Nevada, meanwhile, offers more stable exposure to the gold price without the operational risks of mining.
One key point in UBS’s analysis is that not all gold miners are created equal. Investors have rewarded consistent operators in low-risk jurisdictions and punished those with poor performance or exposure to politically volatile regions.
This has created valuation gaps that UBS believes represent opportunity — particularly for investors willing to back recovery stories.
The rally in gold stocks is real, but the risks haven’t gone away. For now, UBS reckons the risk-reward balance still favours the miners. But after a decade of disappointment, they have work to do to prove this time is different.