Gold stocks are increasingly standing out in stock markets slammed by Trump’s massive tariffs. While general stocks plunge into a deeper correction threatening a bear, gold stocks just broke out to a dozen-year secular high. The gold miners are earning their richest and fattest profits ever with gold prices so lofty, leaving their stocks deeply-undervalued. This sector will really shine even during a global trade war.
Holy cow, talk about wild markets this week! This happens to be my 1,168th weekly web essay, which I research, write, and proof on Thursdays before publishing early Fridays. So the necessary data cutoffs are Wednesdays’ closes. I did watch Trump’s “Liberation Day” press conference live, but I haven’t yet seen how Thursday’s market reactions will fully play out or what will happen after Friday morning’s jobs report.
Wall Street was desperately hoping Trump’s tariffs would be measured, but he went hard. He declared the US is imposing “discounted” reciprocal tariffs including 20% on the European Union, 25% on Mexico and Canada for goods not covered by the USMCA, and 34% on China! But total tariffs will be even higher on some countries, as those new tariffs are added on top of existing tariffs which already ran 20% for China.
This new tariff regime will be the highest imposed by the US for roughly a century, give or take a third of a century based on economists’ varying analyses. But way back then, global trade was far-smaller. So for all intents and purposes, markets are heading into uncharted territory. Here there be monsters! No one knows how this will all play out, the potential reactions, retaliations, and impacts too vast and complex to predict.
Maybe Trump’s bold gambit sledgehammering the world-trade status quo will pressure countries to remove many tariffs, leaving a much-fairer playing field for exporters everywhere. Or maybe it will spawn ever-escalating retaliatory tariffs collapsing global trade, fueling a worldwide recession or potentially even depression! Lobbing this hand grenade creates some of the greatest market uncertainty we’ve seen in our lifetimes.
Fears of how big Trump’s tariffs would prove were the main catalyst pounding the flagship S&P 500 down 10.1% from mid-February to mid-March. That edged into correction territory, formally slaying its colossal 49.2% AI-bubble upleg born in late October 2023! With the extreme bubble valuations that drove, a major stock selloff was inevitable sooner or later. If Trump’s tariffs were mild, a different catalyst would’ve arisen.
Yet during that stock-selloff span, gold climbed 1.5% which major gold stocks amplified by 2.6x with their leading GDX ETF rallying 4.0%. Midday Thursday as I pen this, markets are a bloodbath with Trump’s tariffs being way-more-aggressive than expected. The S&P 500 is plummeting another 4.4%, extending its total correction to 11.7%. Yet across that timeframe, gold has surged 6.5% with GDX powering 11.6% higher!
Gold and its miners’ stocks are defying markets, rallying through this mounting carnage. Gold has always been the ultimate portfolio diversifier, shining brighter when stock markets weaken. Material selloffs leave traders looking to alternatives from the usual mega-cap techs everyone piles into, boosting gold demand. Despite gold’s remarkable monster 71.6% upleg since early October 2023, diversification into gold is just starting.
Central banks have led the demand charge in shifting their massive US-dollar-dominated reserves more into gold. But American stock investors enthralled by the now-bursting AI stock bubble have just started buying. During that epic gold upleg, the combined gold-bullion holdings of the world-dominant US GLD and IAU gold ETFs merely climbed 6.3% or 80.3 metric tons. That’s unbelievably-small by historic standards.
Gold’s last 40%+ monster uplegs both crested in 2020, averaging hefty 41.4% gains. Their main driver was American stock investors piling into GLD and IAU shares. Their holdings builds averaged a huge 32.9% or 387.4t through those uplegs! That’s 4.8x what gold’s current monster upleg has seen so far. Because that AI stock bubble stole the limelight, American stock investors’ gold allocations are still near zero.
This Wednesday just before Trump unleashed hell, all the S&P 500 stocks’ total market capitalizations ran $50,866b. Yet the total value of GLD’s and IAU’s holdings was merely $136b. So this proxy indicates American stock investors only had less than 0.27% of their portfolios allocated to gold! Even if that merely returns to 1% or 2% which is still very-low, gold will see enormous capital inflows further bidding up its prices.
And as goes gold, so go gold stocks. The major gold miners dominating GDX tend to see their prices amplify material gold moves by 2x to 3x historically. During those last two monster gold uplegs peaking in 2020, GDX averaged 105.4% gains for 2.5x upside leverage. Yet through this current huge 71.6% gold upleg, GDX has only rallied 77.4% for 1.1x! Massive gold-stock gains are still coming to reflect their metal.
Gold-stock leverage to gold is fundamentally-driven, mirroring gold-mining earnings’ relationship with gold. Back in Q4’23 when its monster upleg was born, gold averaged $1,976. In the just-finished Q1’25, that soared 45.0% to $2,866! Meanwhile the GDX-top-25 gold miners’ all-in sustaining costs last quarter will likely average around $1,500 once reported by mid-May. That makes for sector implied unit profits of $1,366.
That will prove the highest ever by far, shattering Q4’24’s previous record of $1,207 per ounce! If this estimate is in the ballpark, the major gold miners’ earnings soared 101% doubling from Q4’23 to Q1’25 during this monster gold upleg. That makes for 2.2x upside leverage to their metal, fundamentally justifying their outsized stock gains relative to gold. And such colossal earnings growth is nothing new for this sector.
Right after every quarterly earnings season, I painstakingly analyze the GDX top 25’s results and write an essay about them. Q4’24 proved the sixth consecutive quarter of enormous stock-market-leading implied profits growth. These last six quarters clocked in soaring 87%, 47%, 35%, 84%, 74%, and 78% YoY! So this latest Q1’25 seeing another 100%ish would be right in line. Gold miners’ fundamentals are amazing.
My final essay of 2024 marveled at gold’s remarkable year, where foreign investors led by central banks usurped the gold-demand helm from American stock investors. All they cared about was the AI market-darlings led by NVIDIA. Interestingly it is faring far worse than the S&P 500 has recently, down 30.9% at worst midday Thursday for 2.6x downside leverage! Bubble-valued stocks plunge as fast as they soar.
My first essay of 2025 predicted this would prove gold stocks’ revaluation year. Since the much-higher gold prices have catapulted their earnings way higher, their stock prices need to soon blast way higher to reflect those fundamentals. The Friday we published that essay, GDX closed at $35.00 which was 25% lower than midday-Thursday levels. With gold stocks near recent lows, I got plenty of scoffing feedback.
That’s fine and normal, most traders wax bearish when prices are low and bullish when they are high. Unfortunately that’s the polar opposite of necessary fight-the-herd discipline required to buy low and sell high. Since this year dawned, sentiment has improved considerably with both the metal and its miners’ stocks surging. The longer and higher gold stocks mean revert relative to gold, the more enthusiasm grows.
In addition to phenomenal record fundamentals, gold-stock technicals are really improving. This chart looks at GDX over the past several years or so, illuminating this sector’s solid secular uptrend. Since plunging to a deep secular low in late September 2022, gold stocks have been carving higher lows and higher highs on balance. As of midday Thursday GDX is up 111.9% since then, compared to gold’s 92.6% gains.
As a small contrarian sector, mainstream investors usually ignore gold stocks. They don’t like to buy anything out of favor low, instead preferring to buy high chasing well-established upside momentum. That’s sure mounting in gold stocks, which along with dazzling record gold prices and general-stock selling should increasingly push this sector back onto investors’ radars. GDX is hitting major technical milestones.
In late March this leading gold-stock benchmark decisively broke out to a 12.2-year secular high! Over a month before that came to pass, I predicted it and explained why it was so important in a GDX dozen-year-breakout essay. In a nutshell, higher stock prices fueling expanding interest and capital inflows eventually produce enough upside momentum to reach a psychological tipping point of self-feeding buying.
Gold stocks are getting closer to that, when they will really start soaring. Gains across stock markets tend to be lumpy, usually measured but sometimes enjoying compressed periods of fast-and-furious gains. Trump’s tariffs potentially unleashing a global trade war should hasten gold stocks’ revaluation higher. Interestingly gold itself is explicitly exempted from all Trump’s tariffs, so gold miners can still sell into the US.
High tariffs should have a minimal impact on gold miners’ costs, and zero on their selling prices. I’m looking forward to seeing what the GDX-top-25 gold miners say about tariffs and costs in their upcoming Q1 results, which will arrive over several weeks from late April to mid-May. I’ll report on what I find in the subsequent GDX-top-25 Q1’25-results essay. Gold stocks are largely insulated from tariffs, unlike most stocks.
Some of the big US companies facing serious impacts are obvious, like large retailers. Think of all the goods Walmart imports from China, and all the fruits and vegetables imported from Mexico. While much of the high tariffs will have to be passed along to Americans in higher costs, retailers and producers will eat some sizable fraction. That will really cut into corporate profits, exacerbating general-stock selling.
What about Apple, one of investors’ most-loved stocks in recent decades. Something around 9/10ths of its products including iPhones are imported from China. Trump’s 54% tariffs on it, maybe up to 79% if that country keeps importing transshipped Venezuelan oil, could prove catastrophic for Apple! Americans have been increasingly-cash-strapped from inflated prices even before tariffs force import prices even higher.
What would 25%-higher selling prices do to iPhone demand? The resulting weaker sales would be really amplified in much-lower earnings, pounding Apple’s stock. The longer analysts and investors think about and research big tariffs’ impacts, the more worried they will get about individual stocks. That will likely intensify the selling, especially given recent rampant bubble valuations thanks to the AI speculative mania.
And big tariffs’ impact is much broader than the obvious cases. Amazingly about 4/10ths of the collective revenues of all the elite S&P 500 companies come from outside the US! What happens to a large fraction of those when other countries that are major markets like the EU and China retaliate with their own big import taxes? Resulting much-higher selling prices overseas have to retard demand there for American products.
Traders are certainly justified in fearing a global trade war will prove seriously-damaging to stock markets. The combination of bubble or near-bubble valuations with weakening corporate revenues amplified into even-bigger earnings declines is ominous if not scary. This nuclear-bomb shock to stock markets is unprecedented, since these are the biggest tariffs in a century-ish in a far-more-complex interconnected world.
Such extreme uncertainty greatly elevates gold stocks’ attractiveness, so their massive outperformance of general stocks should accelerate. They can instantly sell every ounce they mine at prevailing world gold prices, with effectively no tariffs. Their profits amplify higher gold prices, and have been soaring at mid-to-high double-digit rates for seven quarters in a row now. That huge earnings growth has left valuations cheap.
And with American stock investors finally getting worried about their vastly-overweighted and crowded mega-cap-tech positions, they’ll increasingly remember the wisdom of prudent portfolio diversification. Gold has long topped the alternative-investments list, tending to rally counter to stock markets when they are weakening. And with virtually-zero gold allocations now, American stock investors have huge buying to do.
For many centuries if not millennia, investors universally believed 5%-to-10% portfolio allocations in gold were essential. But even going back to a still-small 1% to 2% would require American stock investors to at least quadruple their allocations unleashing massive capital inflows into gold! And adding some gold stocks on top of that supercharges gold’s beneficial portfolio attributes. Gold miners will return to favor.
Unfortunately this sector is challenging to invest in. While GDX is easy, it has always been burdened by deadweight supermajors that really retard its performance relative to gold. Last year gold soared 27.2%, besting even the S&P 500’s huge 23.3% gains. Yet GDX dreadfully underperformed, rallying just 9.4% in 2024! Some of the world’s largest gold miners dominating its weightings simply aren’t worth investing in.
That’s why I’ve always preferred fundamentally-superior mid-tier and junior gold miners. Operating at smaller scales, they are better able to consistently grow their production often at lower mining costs. They offer a unique mix of sizable diversified production, excellent output-growth potential, and smaller market capitalizations ideal for outsized gains. Expertly-picked smaller gold stocks far outperform GDX.
For a quarter-century now I’ve written two subscription newsletters to pay the bills and feed the families working with my company. They specialize in analyzing markets, gold, and gold stocks to identify good trading opportunities. In 2024 they realized 84 gold-stock trades, which all averaged 43.1% annualized gains! That’s over 4.6x better than GDX! In recent months we’ve added many new trades also now thriving.
Midweek their unrealized gains were already running as high as +74%! Imagine how the better smaller gold stocks will skyrocket as GDX normalizes with gold this year. This sector’s upside potential is huge. With gold’s monster upleg up 71.6% this week, GDX’s parallel one should be running 143% to 215% with that historic 2x-to-3x leverage. Yet only at +77.4% so far, gold stocks still have vast rallying to do to reflect gold.
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The bottom line is gold stocks are defying the recent stock-market selling. They’ve rallied with their metal through this entire young S&P 500 correction, including early Thursday after Trump’s big tariffs. Those are a real threat to many big US companies’ sales and profits, which will exacerbate their stocks’ selloffs. The gold miners aren’t only largely-immune to any global trade war, but their fundamentals are fantastic.
Weakening stock markets are boosting gold investment demand worldwide, driving prices even higher. The gold miners’ earnings really leverage gold upside, and have already soared mid-to-high double-digits for seven quarters in a row now. That’s left their stocks deeply-undervalued, really standing out in still-bubble-valued stock markets. Gold stocks have massive mean-reversion rallying to do to reflect gold’s strength.
Adam Hamilton, CPA
April 4, 2025
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