Trump’s high tariffs are making gold stocks stand out more and more in stock markets. Gold stocks have surged to a secular high of twelve years, as general equities sink into a deeper slump that threatens a bear market. With gold prices so high that their equities are severely undervalued, the gold miners are making the largest and fattest profits they have ever made. Even in the midst of a global trade war, this industry will thrive.
Whoa, this week’s markets are crazy! I research, write, and proofread my weekly web essays on Thursdays before publishing them early on Fridays, and here is my 1,168th one. Therefore, Wednesday closures are the required data cutoffs. I did see the live stream of Trump’s “Liberation Day” news conference, but I haven’t seen how the market will respond on Thursday or what will happen following the jobs data on Friday morning.
Trump struck hard, despite Wall Street’s fervent hope that his tariffs would be moderate. He said the United States is enforcing reciprocal “discounted” tariffs, which include 34% on China, 25% on Mexico and Canada on items not covered by the USMCA, and 20% on the European Union! However, since those new tariffs are on top of the previous ones, which already amounted to 20% for China, the overall tariffs on some nations will be considerably higher.
Based on differing estimates from economists, this new tariff regime will be the biggest the US has imposed in about a century, give or take a third of a century. However, international trade was much smaller in those days. Therefore, markets are essentially entering unknown ground. There are creatures here! Nobody can foretell how all of this will turn out since the possible responses, retaliations, and effects are too numerous and intricate.
Perhaps Trump’s audacious strategy of destroying the current global trade order will put pressure on nations to lower numerous barriers, creating a far more level playing field for exporters worldwide. Or perhaps it will lead to ever-higher retaliatory tariffs that destroy international trade and cause a global recession or even depression! This hand grenade causes some of the most extreme market turbulence we have ever witnessed.
Fears about the size of Trump’s tariffs were the primary cause of the flagship S&P 500’s 10.1% decline from mid-February to mid-March. That officially smashed its enormous 49.2% AI-bubble upleg born in late October 2023, slipping into corrective territory! It was inevitable that there would eventually be a significant stock selloff due to the enormous bubble prices that propelled it. A new catalyst would have emerged if Trump’s tariffs had been less severe.
However, gold rose 1.5% during that period of stock selloffs, which was 2.6 times amplified by large gold stocks, with their leading GDX ETF rising 4.0%. As I write this at noon on Thursday, markets are in a tumult due to Trump’s tariffs, which are far more punitive than anticipated. The S&P 500 is now down 4.4% further, bringing its whole correction to 11.7%. But throughout that period, gold has increased by 6.5 percent, while GDX has fuelled an 11.6% increase!
Despite the increasing carnage, gold and the equities of its miners are defying the market. The best approach to diversify a portfolio has always been with gold, which shines brighter when stock markets decline. The demand for gold is increased when material selloffs force traders to hunt for alternatives to the typical mega-cap technology that everyone invests in. The diversification into gold is just getting started, even with the incredible monster 71.6% upleg in gold since early October 2023.
Demand has pushed central banks to convert more of their enormous reserves, which are dominated by US dollars, into gold. However, American stock investors who were captivated by the now-popping AI stock bubble have only recently begun to purchase. The combined gold-bullion holdings of the main US GLD and IAU gold ETFs only increased 6.3%, or 80.3 metric tonnes, during that historic gold upleg. It’s really little by historical standards.
Both of gold’s most recent 40%+ monster uplegs peaked in 2020 with respectable average gains of 41.4%. American stock investors flooding into GLD and IAU shares were their primary motivator. Through those uplegs, their holdings builds averaged an incredible 32.9%, or 387.4t! Gold’s current monster upleg has seen 4.8 times that amount thus far. American stock investors’ gold allocations remain close to nil because that AI stock bubble took centre stage.
Just before Trump unleashed hell on Wednesday, the market capitalisation of all S&P 500 equities was $50,866 billion. However, the combined assets of GLD and IAU were only worth $136 billion. According to this proxy, gold accounted for less than 0.27% of the portfolios of American stock investors! Massive capital inflows will drive up the price of gold even if it only drops back to 1% or 2%, which is still extremely low.
Gold stocks also rise in value in tandem with gold. The prices of the main gold miners controlling the GDX typically increase material gold movements by two to three times in the past. The last two massive gold uplegs, which peaked in 2020, saw GDX average gains of 105.4% for 2.5x upside leverage. However, GDX has only increased by 77.4% for 1.1x during this massive 71.6% gold upleg! Their metal is still showing massive rises in gold stocks.
The fundamentally driven relationship between gold-stock leverage and gold is similar to that between gold mining revenues and gold. When its monster upleg first appeared in Q4 of 2023, gold averaged $1,976. In the recently concluded Q1’25, that increased by 45.0% to $2,866! When reported by mid-May, the all-in sustaining costs for the last quarter of the GDX-top-25 gold miners are expected to average about $1,500. This results in $1,366 in sector indicated unit profits.
That will be by far the most ever, breaking the previous record of $1,207 per ounce set in Q4’24! The largest gold miners’ profits doubled by 101% from Q4’23 to Q1’25 during this massive gold upleg, if this estimate is accurate. This translates to 2.2x upside leverage to their metal, which essentially explains their disproportionate stock increases in comparison to gold. And for this industry, such enormous earnings growth is nothing unusual.
I meticulously examine and compose an essay on the performance of the GDX top 25 immediately following each quarterly reporting season. For the sixth consecutive quarter, Q4’24 saw a huge increase in implied profits that led the stock market. The YoY figures for the last six quarters were 87%, 47%, 35%, 84%, 74%, and 78%. Therefore, another 100%+ would be in line with the most recent Q1’25. The foundations of gold miners are incredible.
My last piece for 2024 marvelled at the extraordinary year of gold, when central bank-led overseas investors took the lead in gold demand from U.S. stock investors. The NVIDIA-led AI market darlings were all that mattered to them. At worst, it was down 30.9% at midday Thursday for 2.6x downside leverage, which is interestingly significantly worse than how the S&P 500 has been doing lately! Stocks with bubble values fall as quickly as they rise.
This year will show to be the revaluation year for gold stocks, according to my first essay of 2025. Since their earnings have increased significantly due to the rising gold prices, their stock prices must soon soar to reflect these realities. GDX finished at $35.00 on the Friday we published the piece, a 25% decrease from midday to Thursday levels. I received a lot of mocking comments because gold stocks were close to recent lows.
That is very acceptable and typical; most traders are bullish when prices are high and bearish when they are low. Regretfully, that is the complete reverse of the fight-the-herd mentality needed to buy low and sell high. With the metal and the equities of its miners rising since the start of this year, mood has significantly improved. The more the enthusiasm, the longer and higher the mean return of gold stocks in relation to gold.
Apart from outstanding record fundamentals, gold-stock technicals are also getting much better. This graph, which examines GDX over the last few years, shows the strong secular upward tendency in this industry. Gold stocks have been making higher lows and higher highs overall since falling to a deep secular low in late September 2022. GDX is up 111.9% since then as of Thursday midday, while gold has gained 92.6%. Gold stocks are typically ignored by mainstream investors because they are a small contrarian sector. They like to buy high and follow existing upward trend rather than buying something out of favour low. Undoubtedly, rising gold stock prices, together with stunning record gold prices and general stock sales, should help bring this industry back into the spotlight for investors. GDX is reaching significant technological benchmarks.
This top gold-stock benchmark made a strong breakout to a 12.2-year secular high in late March! I foresaw that and outlined its significance in a GDX dozen-year-breakout essay more than a month before it actually happened. In summary, rising stock prices that stimulate growing interest and capital inflows ultimately generate enough upward momentum to trigger self-feeding buying at a psychological tipping point.
The time when gold stocks will truly begin to surge is approaching. Stock market gains are typically erratic, mostly measured, but occasionally characterised by brief bursts of explosive growth. Trump’s tariffs should accelerate the revaluation of gold equities because they have the potential to start a worldwide trade war. It’s interesting to note that gold is specifically exempt from all of Trump’s tariffs, meaning that miners can continue to sell their product in the US.
High tariffs ought to have no effect on the selling prices of gold miners and only a minor effect on their expenses. The GDX-top-25 gold miners will release their Q1 results over a few weeks from late April to mid-May, and I’m interested to read what they have to say regarding tariffs and costs. I’ll discuss my findings in the GDX-top-25 Q1’25-results essay that follows. Unlike other stocks, gold stocks are mostly immune to tariffs.
Large stores are among the well-known US corporations that are being severely impacted. Consider all of the products that Walmart imports from Mexico, as well as the fruits and vegetables that it imports from China. Retailers and manufacturers will bear a significant portion of the hefty tariffs, even if most of them will have to be passed on to Americans in the form of higher prices. That will significantly reduce company profits and make general stock sales worse.
What about Apple, one of the most popular stocks among investors in recent years? It imports around 9/10 of its products, including iPhones, from China. Apple may suffer greatly from Trump’s 54% tariffs on it, which might rise to 79% if that nation continues to import transshipped Venezuelan oil! Price inflation has left Americans in a precarious financial situation even before tariffs drive up import costs.
How would the demand for iPhones change if selling prices were raised by 25%? Apple’s price would be severely damaged by the ensuing reduced sales, which would be greatly exacerbated by substantially lower profitability. Analysts and investors will get increasingly concerned about specific equities the longer they consider and investigate the effects of large tariffs. Given the current frenzied bubble prices brought on by the AI speculative frenzy, that is probably going to make the selling more intense.
Furthermore, the effects of high tariffs go far beyond the apparent instances. Remarkably, approximately 4/10ths of the total revenue of the prestigious S&P 500 businesses originates from non-US sources! What happens to a significant portion of those when other important markets, such as China and the EU, respond with high import levies of their own? The demand for American products abroad must be slowed by the resulting much higher selling prices.
Traders’ concerns that a global trade war will do significant harm to stock markets are undoubtedly well-founded. It is concerning, if not frightening, when bubble or near-bubble values are combined with declining business revenues to produce even greater earnings losses. In a world that is more linked and sophisticated than ever before, these levies are the largest to hit stock markets in a century or so.
Gold stocks are much more appealing due to this tremendous uncertainty, which should increase their massive outperformance of general stocks. With practically no customs, they can sell every ounce of gold they mine right away at the current global prices. Their profits, which have been rising at mid-to-high double-digit rates for the past seven quarters, are a direct result of rising gold prices. The significant increase in earnings has resulted in low valuations.
Additionally, American stock investors will gradually recognise the benefits of wise portfolio diversification when they finally start to worry about their heavily overweighted and crowded mega-cap-tech positions. Since gold tends to rise in opposition to stock markets when they are declining, it has long been at the top of the list of alternative investments. Additionally, American stock investors have a lot of buying to do now that gold allocations are almost zero.
For years, if not millennia, investors generally held the view that holding 5% to 10% of their portfolio in gold was crucial. However, American stock owners would need to at least treble their holdings in order to return to even a still-small 1% to 2%, which would unleash massive capital inflows into gold! Furthermore, the positive qualities of gold as a portfolio are enhanced by the addition of gold stocks. Gold miners will gain favour again.
Regretfully, investing in this industry is difficult. Even though GDX is simple, deadweight supermajors have always plagued it, which significantly impairs its performance in comparison to gold. Gold rose 27.2% last year, surpassing even the S&P 500’s impressive 23.3% gains. However, GDX did horribly poorly, only rising 9.4% in 2024! It’s just not worth investing in some of the biggest gold miners in the world that control its weightings.
I’ve always favoured junior and mid-tier gold miners that are inherently better because of this. They can more reliably increase their output at smaller sizes, frequently at a cheaper cost of mining. They provide a special combination of large, varied production, outstanding output-growth potential, and smaller market capitalisations that are perfect for disproportionate profits. Smaller gold equities chosen with care perform far better than GDX.
For the past 25 years, I have been writing two subscription newsletters to help my firm pay its bills and provide for the families of its employees. To find profitable trading chances, their area of expertise is market, gold, and stock analysis. They made 84 gold-stock deals in 2024, with an average annualised gain of 43.1%! That is more than 4.6 times superior to GDX! We’ve introduced a lot of new trades in recent months, and they’re doing well.
By the middle of the week, their unrealised gains had already reached +74%! As the GDX normalises with gold this year, just think of how much better smaller gold companies will rise. The upside potential in this industry is enormous. With that historic 2x-to-3x leverage, GDX’s parallel upleg should be running between 143% and 215%, given that gold’s monster upleg is up 71.6% this week. However, gold stocks still need to surge significantly to represent gold, as they are currently only up +77.4%.
In summary, gold stocks continue to rise despite recent stock market declines. Throughout the entire recent downturn of the S&P 500, including early Thursday following Trump’s significant tariffs, they have rallied with their metal. These pose a serious risk to the sales and profitability of numerous large US corporations, which will worsen the selloffs of their equities. In addition to having excellent fundamentals, the gold miners are essentially impervious to any global trade war.
Global demand for gold investments is increasing due to weakening stock markets, which is pushing prices higher. The profits of the gold miners have already risen in the mid-to-high double-digits for seven consecutive quarters, demonstrating how much gold upside they have.
source : mining dot com
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