Skip to content

CONTRIBUTORS

Steve Land, CFA

Portfolio Manager, Research Analyst
Franklin Equity Group

Key takeaways:

  • Geopolitical risks, economic instability and equity market volatility are pushing some investors to seek out what they believe are more secure assets, such as gold.
  • Sanctions and deglobalization of trade are creating opportunities to re-establish gold as a currency alternative for international transactions.
  • New demand drivers have pushed gold prices higher, but we believe room remains for historical catalysts—such as US dollar weakness, falling yields or increased investor interest—to raise prices further.
  • Despite strong earnings, gold-mining equities materially lagged bullion returns in 2024, potentially setting the stage for mining stocks’ outperformance if margins remain robust.

What’s driving gold’s sustained price strength?

Gold has long been perceived as an investment “safe haven” in times of political and economic uncertainty. However, under-the-radar structural forces shaping the gold market may better explain the metal’s recent upward trajectory in the face of factors that have proven to be headwinds in the past, including its historical inverse correlations to the trade weighted US dollar and higher real bond yields. Gold prices have risen with the emergence of new demand sources over the past few years, with central banks and international trading partners increasing their use of gold as a currency. However, we think traditional factors like US dollar weakness, falling yields and investor demand could drive prices even higher.

We also believe the underperformance of mining equites in 2024 creates a compelling investment opportunity in 2025. Mining equities materially lagged gold bullion returns last year, despite delivering solid earnings and cash flow gains due to higher spot gold prices.1 We think this leaves mining stocks poised to potentially outperform physical gold—assuming gold either remains in its current trading range or moves higher. 2

Conclusion

Many gold producers have seen earnings and cash flow rise faster than their share prices, resulting in contracting valuation multiples despite improving business fundamentals and a positive outlook on future earnings growth. With equity valuations running significantly below market averages, investors appear skeptical about the sustainability of current gold prices. We believe this creates an opportunity for gold mining equities to appreciate even in a relatively flat gold-price environment, while still being well positioned to benefit if prices continue their upward trajectory.

Endnotes

  1. Source: Bloomberg, L.P. Data compares gold’s spot price versus the FTSE Gold Mines Index. The FTSE Gold Mines Index is designed to reflect the performance of companies that primarily derive their revenue from the mining of gold. To be included in the index, a company must consistently produce a minimum of 300,000 ounces of gold per year and derive at least 51% of its revenue from mined gold. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results
  2. Source: Bloomberg, L.P. From the beginning of February to mid-March 2025, the trading range for spot gold was approximately US$2,850 to US$2,950 per ounce.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments.

To the extent the portfolio invests in a concentration of certain securities, regions or industries, it is subject to increased volatility. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured; may lose value; and are not bank guaranteed.

You need Adobe Acrobat Reader to view and print PDF documents. Download a free version from Adobe's website.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.