Gold dipped as much as 2% on Wednesday, touching $4,075 an ounce. The culprit was the Consumer Price Index, which rose 0.6% in September on higher fuel costs.
The Federal Reserve also raised rates for the first time since 2023. According to Bloomberg, traders now see a better-than-even chance of another hike in October, with three increases priced in by April.
When gold slumps, it disproportionately drags the miners down, so VanEck Gold Miners ETF (NYSE:GDX) lost 4.40% in the last session. Yet, producers currently have the strongest balance sheets in two decades and are increasingly positioning for strategic acquisitions.
The Road Back to Records
Speaking at the Financial Times' Precious Metals Symposium, Troy Asset Management fund manager Charlotte Yonge predicted a new record within 12 to 18 months.
She called gold the ideal "hedge" against the worsening "state of government finances," expecting central banks to print money "next time we go into a recession."
"Gold can't be printed in that same way," she said according to the Financial Times.
Central bank demand is uneven but rebounding. First-half net purchases of 345 tons were the lowest since 2022. Provisional World Gold Council data now show about 63 tons bought in September, the most since November 2024. The People's Bank of China holds roughly 2,410 tons, or 9% of its reserves.
Family offices are "diversifying away from government bonds in favor of gold," said Allied Gold Corporation (NYSE:AAUC) Chief Executive Officer Peter Marrone. Endeavour Mining plc CEO Ian Cockerill put it more bluntly:
"Is $4,000 the floor? I don't know. But if it isn't, it's pretty damn close."
Booming Earnings, Lagging Multiples
Equity investors haven't caught up. The NYSE Arca Gold Miners Index traded at 5.7 times expected operating earnings on Sept. 30, according to Sprott Asset Management. That valuation is about 22% below its 20-year average of 7.3 times, even though forward earnings per share have risen about 4.4-fold since the end of 2023.
"Gold miners have become value plays," John Ing, president of Maison Placements Canada, noted in a September report. However, doubts remain about costs, operational setbacks, and the overspending that followed the 2011 boom, leaving wide gaps between companies.
Agnico Eagle Mines Limited (NYSE:AEM) trades at 7.3 times forecast 2026 EBITDA, compared with 3.5 times for Barrick Mining Corporation (NYSE:B), according to BMO Capital Markets. Furthermore, balance sheets are far healthier than they were in the previous bull cycle.
"Net debt levels have fallen to their lowest point in the past 20 years," said Kenny Zhu, Sprott's director of research and investment strategy. Across BMO's producer universe, cash exceeds debt by about $19.6 billion. Agnico leads with $3.3 billion in net cash, and Barrick has $1.2 billion.
The challenge now is replacing reserves. "Reserve replacement is key, but few miners have been successful, suggesting continued M&A activity," Ing wrote.
