Crédit Mutuel AM: Gold companies as an opportunity lever
By Charlotte Peuron, specialized fund manager, Crédit Mutuel Asset Management
The gold market is experiencing a strong rise at the beginning of 2025, driven by favorable economic and political risks (inflation, geopolitical uncertainties, return of Donald Trump to power, massive purchases by central banks and investors, etc.)
Investing in gold companies can be complementary to holding gold and sometimes more advantageous. Gold companies can benefit not only from the rise in the price of gold, but also from solid fundamentals, positive cash flows and attractive valuations.
Outlooks for gold in 2025
In January 2025, gold continued its upward trend of 2024, driven by economic and political risks (trade wars, inflation in the United States, political instability, etc.). This was accentuated by the return of Donald Trump to the presidency of the United States, the establishment of his new administration and his first decrees, which only increased uncertainties. All of these elements convinced investors to return to this sector and, in February, gold recorded a new all-time high at $2,956.2 per ounce (on February 24, 2025). Demand from Western investors is increasing, both through Gold ETFs and through deliveries of physical gold. Furthermore, China, in addition to central bank purchases, has just launched a pilot program allowing insurance companies to invest in gold for their medium- and long-term asset allocation strategies. All the lights are green and this should support the demand for gold. Silver is not far behind and is up 12.8% since the beginning of the year, to $32.6 per ounce.
The current context remains very favourable for precious metal producers. Indeed, the good results for 2024, both in terms of production and financially, recently published by companies, as well as the continued rise in metal prices and good control of production costs, are strengthening investor confidence for 2025. This is all the more true since investors are convinced that the price of gold will remain high this year.
The gold sector has significantly outperformed gold at the start of the year: +22.3% for the Nyse Arca Gold Miners index compared to +10.8% for an ounce of gold (on 07/03/2025 in USD). This is explained by the quality of the operating results delivered by the companies, the good performance of metal prices a delay in the valuation of companies at this level of gold price.
Today, investors, anticipating a continued rise in gold, are looking for the leverage offered by companies, and significant investment flows are once again entering the sector. In addition, companies have provided their “guidance” for 2025, and it is a safe bet that with such high metal prices, analysts will have to revise their estimates upwards, thus constituting another supporting factor for the sector. All of these elements are not yet integrated into the companies’ valuations.
Gold companies versus physical gold
Gold is often seen as a counter-cyclical asset, popular during economic downturns or market volatility. While it can provide protection against inflation and improve long-term risk/return, investing in gold companies can offer additional benefits compared to physical gold or gold ETFs.
These companies (gold companies) are indeed supported by strong fundamentals and positive market momentum. They benefit directly from the rise in gold prices, with well-controlled production costs, high and increasing margins, and positive cash flow generation. In addition, these companies have strong balance sheets, with a focus on returning value to shareholders through dividends.
Although the rise in gold prices has led to an increase in their valuations, these companies are still considered relatively cheap when factoring in future earnings expectations. The market has yet to fully price in the sustainability of the current gold price rally, meaning that gold miners could post better-than-expected results.
Additionally, the sector is experiencing increased consolidation, with larger companies acquiring smaller, undervalued players, boosting their growth potential.
In summary, investing in gold companies has the advantage of benefiting from both rising gold prices and the operational strengths of these companies, such as strong cash flows, effective cost management and shareholder-focused strategies. This combination of factors can generate attractive returns that go beyond the simple movement of the gold price.
