Gold Mining Stocks Shine Despite September Price Drop

Gold's September stumble may have fooled some investors into thinking the bull market had run out of steam. However, when looking at the full third quarter, a different picture emerges.

The NYSE Arca Gold Miners Index delivered a total return of 17.4% in the three months ended September 30, beating every sector in the S&P 500, including energy, which rode higher oil prices to a 17.2% gain.

Despite gold falling 6.3% in September and real yields rising to their highest level since November 2008, central banks continue to buy gold, with China's central bank adding more than 20 tonnes of gold in August and importing a record 1,141 tonnes in the first eight months of the year.

Investors also held their ground, with everyday investors buying gold through exchange-traded funds (ETFs) at a rate that outpaced price declines. This suggests strong conviction among investors, despite the bond market's dominant influence on gold prices in September.

The industry's fundamentals continue to support gold mining stocks, with free cash flow per share growing tenfold since 2020 and the sector's earnings yield of about 12% being the highest of any sector. Large miners are also bidding for one another again, indicating confidence in the sector's prospects.