The increase is part of a wider 26% year-to-date jump, and is driven by rate cut expectations, which lower the opportunity cost of holding non-yielding assets such as gold. The big question now is – can gold go higher and where is the best value upside to take advantage of these already historic highs?

The rally in gold and what has driven it.

The Fed’s more dovish turn certainly has been a catalyst, as has continued foreign central bank buying from China, Russia, and India, along with increased Chinese and Indian retail demand for physical gold, too. We're also witnessing a resurgence of interest in physically backed gold ETFs. These funds, after months of persistent selling, have turned net-buying over the past three months, providing a major new source of demand. Aside from monetary policy developments, geopolitical tensions are also flaring – like the continued fighting in Ukraine and the Middle East and the future US presidential election – all of which continue to funnel purchasing into gold as a haven asset.

Gold producers lagging

Coincidentally, though, as gold prices have kept rising, the prices of gold miners' stocks have underperformed badly. Most producers are currently trading at all-time low price-to-NAV multiples. This disconnect is largely due to past pressures from inflation that negatively impacted the miners’ profitability (especially during the COVID-19 pandemic), and we are currently beginning to see a reversal of those pressures.

Cost inflation has moderated and we are beginning to see cost deflation come through to producers. If so, upcoming quarterly results over the coming quarters might surprise to the upside, driving better profitability and free cash flow results. It is where, in our opinion, the value lies for the sector: this could pave the way for a sector-wide re-rating of significant magnitude.

Where do we find the best value?

If you’re an investor and want to take advantage of this opportunity, small and mid-cap miners provide the best leverage to rising gold prices. These companies are more sensitive to price evolution, with lower increases in gold causing impressive improvements in their margins. Funds such as Golden Prospect Precious Metals that target these miners historically outperform by wide margins during gold price rallies, like those in the 2008 Financial Crisis and the COVID pandemic.

Against a backdrop of gold hitting new highs, central bank demand remaining strong, and miners trading at deeply undervalued multiples, this strategy offers significant positive asymmetry.