Why gold and miners remain a strategic allocation

Core Viewpoint - Gold is increasingly viewed as a critical asset in investment portfolios, serving as a hedge against geopolitical tensions and economic uncertainty, and is being favored over US Treasuries as a safe-haven asset [1][3]. Investment Trends - There is a noticeable shift of private wealth away from USD-denominated assets and traditional safe havens in Europe due to regulatory and political uncertainties, prompting new investment ideas and payment ecosystems [2]. - Demand for gold from the jewelry sector is expected to remain muted in 2026, but investment and central bank purchases are anticipated to grow due to geopolitical and economic uncertainties [5]. Gold Mining Sector - Gold mining equities have seen a significant increase of over 150% in the past 12 months, presenting a leveraged opportunity for investors as these companies benefit from stable all-in sustaining costs (AISC) [7]. - The operating leverage in gold mining can lead to profit margin expansion when gold prices rise, enhancing financial health and enabling miners to pay down debt or increase dividends [8]. Market Dynamics - A lag effect is often observed between gold prices and gold miners' performance due to capital expenditure delays and fluctuating production costs [9]. - The industry is exploring lower grade mining deposits and gold recycling, which may become viable with higher prices, indicating a combined exposure to gold mining stocks and physical gold as an attractive allocation strategy [10]. ESG Considerations - The VettaFi Gold Miners Screened Index tracks the performance of major gold mining companies while incorporating ESG screens to align with sustainable practices [12]. - The industry is making progress in adhering to ESG norms and governance principles, with emerging nations improving licensing processes for mining operations [13]. Central Bank Activity - Central bank purchasing of gold is expected to remain strong, with a significant portion of known global gold reserves already extracted, highlighting the stability of gold production [15].