The last couple of weeks in the markets have been eventful if nothing else, primarily due to the UK Budget announcement and the US Election.

But throughout it all, gold has again demonstrated its strengths. Since the last commentary note, at the end of September, gold continued to rally, reaching new all-time highs at the end of October of $2,783/oz, representing a nearly 35% increase year-to-date.

While the gold spot price has eased somewhat following (and consistent with) the US election success of president elect Donald Trump, which has been marked by increased inflation expectations and a declining number of expected future rate cuts, we still are looking at a price up almost 25% YTD and nearly 30% YoY. Much of this move seems underpinned by a rapid unwind of long speculative positioning, evidenced in the month-to-date (MTD) reduction in physical gold ETF holdings, whereas the longer-term drivers fit for gold, such as Central Bank demand, are no doubt backed by Trump’s inclination for tariffs and trade wars.

“You’re Gonna See Some Margins Up” for Miners

We expected the Q3 reporting season to provide evidence of these improved cash flows for the underlying gold mining equities. With inflationary cost pressures continuing to subside, which had constituted a headwind for miners in recent years, we are now witnessing, as we had forecast, further margin improvements across the mining equities in the current Q3 reporting season.

In our largest position, Emerald Resources, it also turned into strong results in a quarterly report that indicated an increase of 8% in its operating cash flow (vs. Q1 2023). In its Q1 2024 results, another holding, West African Resources (ASX: WAF), announced an increase of over 20% (vs. Q1 2024) in its net cash from mining activities.

The sector is already enjoying some of the highest levels of free cash flow on the market, and the continued M&A activity would likely also increase the share price of the gold miners that are acquisition targets. We think it should also result in a material re-rating of the miners, another scenario which in turn would cause significant increases in share price.

How can investors play this?

For investors keen to play this opportunity, small and mid-cap miners stand to benefit the most. These companies are more sensitive to price changes, small increases in the price of gold, their profit margin can go a long way, as we have seen above in the Q3 2024 reports. Golden Prospect Precious Metals invests in these firms. As you can see from the chart below, throughout history our fund has outperformed the gold spot price when gold prices have rallied in the 2008 Financial Crisis, and during the COVID pandemic.

As of writing, Golden Prospect Precious Metals is up over 33.0% since January 2nd, 2024, compared to the NYSE Arca Gold Miners Index, which is up 18.4%, indicating its competitive edge.