Gold miners have rarely looked this good on paper.
They are posting some of the widest profit margins in the equities market and trading at some of the lowest valuations in decades, yet generalist investors are still sitting it out.
The contrast with the broader market is stark. The S&P 500 (INDEXSP:.INX) is trading near historic market tops, while miners generate strong cashflow, carry low debt and pay dividends, yet make up roughly 2 percent of global equity markets.
History suggests that gap won't hold forever. Specialists dominate mining stocks in today's cycle, but the sector's biggest rallies have come when generalists, in the form of pension funds and retail investors, piled in alongside them. It happened toward the end of the boom in the late 1970s and early 1980s, and again in the early 2010s. In those cycles, mainstream attention turned to gold and precious metals first, then shifted to an investment surge in equities.
Whether that shift is coming, and what it means for investors, was the subject of a presentation by Jeff Clark of Paydirt Prospector at the September Metals Investor Forum in Vancouver. Clark has tracked equities through multiple cycles and was focused on whether it was the right time for generalist investors to get off the sidelines.
Why investors should look at mining stocks
Clark made the case for generalist interest rooted in a profitability and valuation gap that has developed between mining stocks and the broader market. Comparing margins, free cashflow and dividends, he showed mining companies outpacing S&P averages in each category.
He noted that free cashflow per share among miners has grown tenfold since 2020, while earnings yield sits at 12 percent, the highest of any sector. Meanwhile, mining holds the smallest share of global equity markets in 55 years.
This suggests the broader market is vulnerable, with 51 percent of S&P companies trading at 10 times sales, compared to the long-term average of just 1.8 times sales, he explained. In terms of market caps, he said the top 50 gold miners combined are smaller than NVIDIA's (NASDAQ:NVDA) US$5 trillion valuation.
“That market is extremely vulnerable, and this kind of hints at when and why the general market will come into our sector,” he said. “It shows how small our market is and how vulnerable the general market is.”
Clark suggests that, with the mining sector remaining as undervalued as it is, it won’t take much for the market to gain momentum and stock prices to increase.
“This is the smallest level, the smallest percentage in 55 years, even pre-1980. So when they start crowding in, there could be a lot of buying, a lot of demand for stock,” he said.
Ahead of his presentation at the Metals Investor Forum, Clark stopped by the Investing News Network's headquarters in Vancouver to discuss his current investment strategy, his upcoming conference and where he sees the market heading. Watch the full interview above.
Gold fundamentals are there, but equities have yet to catch up
Central bank demand is underpinning today's cycle, and it’s expected to continue.
In June, the World Gold Council released its 2026 Central Bank Gold Reserves Survey, which states that central banks have added an annual average of 1,000 metric tons of gold to reserves over the past four years, and that 89 percent are forecasting increases to global central bank reserves over the next year. The People’s Bank of China has been among the top buyers, purchasing gold for 22 consecutive months, including 20 metric tons in August.
Central banks have seen a broad shift toward gold as uncertainty has grown around the US dollar and, by extension, US Treasuries, which have been the de facto currency reserves for most of the past 50 years. More central banks have built up gold stockpiles to diversify reserves and reduce exposure to counterparty and sanctions risk.
That demand has helped push the gold price substantially higher in recent years. Equities, however, have not kept pace, a gap Clark was keen to highlight. At present, the miners-to-gold ratio sits below where it was in 2016, and only recently returned to where it was during the Covid pandemic in 2020.
“As a group, gold stocks relative to the gold price have basically gone nowhere,” he said.
A comparison against Nasdaq Composite (INDEXNASDAQ:.IXIC) tells a similar story. The gold price relative to the Nasdaq peaked in 2011, but currently sits near all-time lows. Clark suggests the ratio will need to change by a factor of four to get back on equal footing, and that could come from a decline in the Nasdaq alongside a rise in the gold price.
Likewise, the ratio with Dow Jones Industrial Average (INDEXDJX:.DJI) is near lows and far from the peaks in 1980 and during the Great Depression, when they were near parity. While he didn’t say they would reach those same levels again, Clark noted clear potential for gold to move higher and narrow the gap.
“We are no higher as a group now than we were during the Covid rebound. We’ve got a long way up to go,” he said.
What investors should watch
Clark’s data largely focused on the majors and how producers with free cashflow and strong margins compare to equities in the major indices.
Most junior and exploration-stage companies have little to no free cashflow and rely on equity financing, which carries dilution risk. Generalist investment is likely to target the larger companies that present the best economics. Likewise, proven exchange-traded funds will likely benefit from more retail-focused money entering the sector.
Historically, as gold has performed, money has tended to trickle down to developers and explorers later in the cycle as higher commodity prices start to support the economics of restarting stalled projects and majors look to refill their development pipelines.
While strong fundamentals support an elevated gold price, a pullback could also undercut Clark’s thesis, as lower gold prices would hurt margins.
However, he also noted that significant generalist capital was sitting on the sidelines.
“I wanted to know just how much cash is on the sidelines that could come into our sector, so I found that global cash is US$8.5 trillion as of the end of (August),” Clark said.
It doesn’t mean all this money will pour into mining equities immediately, but it highlights potential capital sitting on the sidelines, despite strong fundamentals that underpin cashflow from gold producers.
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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