Meanwhile, cryptocurrencies, buoyed by Donald Trump’s victory and his pro-digital currency campaign pledges, defied naysayers and affirmed their resilience.
VanEck believes that gold, traditionally associated as a safe haven asset, will gain further support from the new US administration and the global macro landscape.
Gold prices currently sit above US$2,600, compared with US$2,070 per ounce at the start of 2024.
In its latest VanEck ViewPoint report, the firm noted that expectations of inflationary policies, heightened geopolitical risks, strong central bank net buying and further rate cuts by the Fed suggest potential upward momentum for gold in the longer term.
However, the ETF provider cautioned that gold equities surprisingly lagged behind the rise in the gold price due to market dislocations in valuing gold equities over recent years.
“We expect periods of rising gold prices to correspond to periods of outperformance for the gold stocks,” the report said.
According to VanEck’s data, gold spot prices are up 27 per cent year to date, while the stocks, as represented by the NYSE Arca Gold Miners Index, have risen only 11 per cent.
“The poor sentiment towards the gold mining sector and the lack of investor interest is evident in the way the gold stocks trade in a rising versus a declining gold price period,” it said.
Despite this, VanEck emphasised that “leverage works both ways”, highlighting the potential merits of investing in gold stocks.
“A move in the gold price generally corresponds to a more meaningful move in the cash margins realised by the miners, thus their operating leverage to the gold price,” the study revealed.
However, the firm observed that in recent years, the market implied leverage of gold stocks to gold price during a rising metal price market is lower than the implied leverage when the price drops.
According to VanEck, this dichotomy represents an opportunity for gold miners who may have been potentially oversold during the price drops and underbought during periods of appreciation.
Excluding the first and the last quarter of 2020, positive quarterly moves in gold prices have translated to an average 1.94 multiple of outperformance by gold equities since 2020, the firm noted.
Still, VanEck observed that the significant gap between gold and gold equities has been narrowing over the past year but widened again due to post-election weakness in the gold sector.
“With gold producers enjoying record margins, leading to record free cash flow generation, we expect this disconnect won’t last forever. Investors looking to hedge broader market risk through gold exposure, we think should also consider an allocation to the gold mining sector,” VanEck said.
“They may be among the few equities not priced to perfection.”
Cryptocurrencies
Bitcoin breaking through US$100,000 during the quarter underscored the resilience of risk-on sentiment of the cryptocurrencies in a global economic landscape, VanEck said, with emerging markets playing a pivotal role.
According to the report, investors in Africa, South-East Asia and South America led in private bitcoin ownership and awareness of cryptocurrencies.
VanEck also noted that bitcoin has become “a political issue” in a number of emerging markets such as Brazil, Poland or Suriname where presidential elections in the latter two could influence decisions on establishing bitcoin reserves and adopting bitcoin as the country’s national currency, respectively, while in Brazil, the congress will vote on a US$18 billion bitcoin reserve.
In the US, the cryptocurrency market has gained significant momentum following Trump’s re-election and the landmark launch of bitcoin exchange-traded products in 2024, the report revealed.
VanEck highlighted that Trump’s appointments of “crypto-friendly” leaders to key positions signalled the end of anti-cryptocurrency policies, such as the systematic de-banking of cryptocurrency companies and their founders.
“These appointments potentially mark the start of a policy framework positioning bitcoin as a strategic asset,” the report said.
According to the report, there were also predictions that either the federal government or at least one US state would establish a bitcoin reserve, with Pennsylvania, Florida or Texas the most likely.
“Federally, this could occur through an executive order utilising the US Treasury’s Exchange Stabilisation Fund (ESF), though bipartisan legislation remains a wildcard,” the firm said.
“Simultaneously, state governments may act independently, viewing bitcoin as a hedge against fiscal uncertainty or a tool to attract crypto investment and innovation,” it added.
