Gold Miners Outperform S&P 500 in Q3 Despite September Slump

Despite a sharp 6.3% drop in September, gold mining stocks still managed to outperform every sector in the S&P 500 during the third quarter. The NYSE Arca Gold Miners Index delivered a total return of 17.4% in Q3, surpassing even the energy sector’s 17.2% gain. The broader S&P 500 returned just 2.3% over the same period.

The September selloff was driven by rising interest rates and a stronger U.S. dollar. The Federal Reserve raised rates for the first time in over three years, and the 10-year Treasury yield briefly hit 5%. Meanwhile, the U.S. Dollar Index climbed over 2%, making gold more expensive for international buyers. The real yield on the 10-year Treasury closed September at 2.93%, its highest level since 2008.

Despite these challenges, gold’s long-term prospects remain strong. Central banks, particularly China’s, continued to buy gold aggressively, with China adding over 20 tonnes in August alone. Poland and South Korea are also increasing their gold reserves, driven by concerns over reserve security after Russia’s assets were frozen in 2022. Additionally, ETF investors held firm, with U.S.-listed physical gold ETFs taking in $3.8 billion in September.

Gold mining stocks have significantly outperformed the price of gold over the past five years, with the NYSE Arca Gold Miners Index returning about 240% compared to gold’s 137% gain. However, these stocks remain underappreciated, making up just 2% of global stock markets. The sector’s earnings yield is around 12%, the highest of any sector, and major miners are now bidding for one another, signaling confidence in the industry’s future.