Gold Miners Outperform Bullion by 64% Since 2023
Rational Equity reports that gold mining equities delivered higher returns than physical gold or ETFs over the past two years.
Key points
- Gold mining equities outperformed physical gold by 64% since August 2023, reaching 3.77 lakh rupees from 1 lakh.
- Rational Equity estimates free-cash-flow yields of 8-10% for large-cap miners and 15-35% for smaller firms.
- Gold mined supply grew only 1% since 2023 despite prices more than doubling, creating structural scarcity.
Gold mining equities outperformed physical bullion by 64% since August 2023. A one lakh rupee investment in miners reached 3.77 lakh rupees, while gold reached 2.30 lakh.
Rational Equity Asset Management argues that operating leverage creates superior returns. Miners benefit from higher margins when metal prices rise significantly.
Miners deliver superior returns to investors
The VanEck Gold Miners ETF grew to 3.77 lakh rupees from a start of 1 lakh. Domestic gold ETFs reached 2.53 lakh rupees over the same period.
Physical 24K gold in India reached 2.30 lakh rupees from the initial investment. This gap highlights the financial advantage of equity exposure over pure metal holdings.
Strong cash flows support mining valuations
Rational Equity estimates free-cash-flow yields of 8% to 10% for large-cap miners. Mid and small-cap miners show yields between 15% and 35% at current prices.
Dividends and share buybacks provide additional sources of shareholder returns. These mechanisms enhance total value beyond simple price appreciation.
Structural supply constraints underpin price growth
Gold prices have more than doubled since 2023, but mined supply grew by only 1%. This imbalance supports the structural nature of the recent price re-rating.
Central banks continue accumulating gold reserves, with 84% expecting higher shares in five years. Silver faces a sixth consecutive supply deficit, projected at 46 million ounces in 2026.
