The news from last weekend read like a checklist of things needed to halt the gold rally in its tracks.
Among the significant developments, on Saturday India and Pakistan agreed to a ceasefire which, while tenuous, appears to be holding.
On Sunday, Hamas said it would release the last American hostage held in Gaza, and the U.S. said it was “encouraged” by the latest Iran nuclear talks.
Putin, Zelinski and Trump all signaled a willingness to restart cease-fire discussions.
And prior to the market opening on Monday, news broke that weekend talks between China and the U.S. in Geneva led to a 90-day ceasefire in the insane trade war between the two countries.
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By the end of Monday’s trading session, the Nasdaq was up 4% and the S&P 500 had just rallied 3.3%
Meanwhile, the price of gold fell 2.7% to $3,235/oz. and gold mining stocks experienced a severe selloff. The price of the VanEck Gold Miners ETF (GDX) fell 7.4% and the Junior Gold Miners ETF (GDXJ) fell 8.1%.
Both ETFs held just above their 50-day moving average lines on Tuesday.
While a little shine has come off gold lately, and there could be more downside if these ceasefire talks are successful, I’m dubious that we’ve seen the last of record gold prices in 2025.
There’s just too much incentive for central banks to continue diversifying into gold and away from the U.S. dollar in a world where there’s so much geopolitical instability, inflation, currency debasement and sovereign debt.
There’s also the potential for the U.S. to freeze foreign reserves for countries that are hostile to American interests when those reserves are held in dollars, as happened to Russia to the tune of about $280 billion. Holding reserves in gold helps U.S. adversaries reduce this risk.
Moreover, new Basel III banking regulations will soon classify gold as a Tier 1, high-quality liquid asset (HQLA). This will happen on July 1. And it means banks can count physical gold at 100% of market value toward their core capital reserves. That’s a lot better than the 50% discount required under the old rules, when gold was classified as a Tier 3 asset.
The bottom line is that, in Q1 2025 alone, central banks have added 244 metric tons of gold to their official reserves. According to the World Gold Council (WGC), that’s 24% above the five-year quarterly average, and continues a trend of significantly higher gold purchases than normal since 2022.
To be clear, I’m not a gold bug. But it is a very good way to diversify a portfolio. And we’ve all had too many reminders in recent years about how volatile the stock market can be to not consider the benefits of diversification.
For those interested in gold, there are really three types of options, aside from purchasing physical gold.
There are ETFs that track the price of gold, such as the SPDR Gold Shares ETF (GLD).
There are the gold mining ETFs I mentioned earlier, including the GDX for large-cap gold miners and the GDXJ for small and mid-cap gold miners.
Then there are the individual gold exploration, development and mining stocks.
For those with the risk tolerance required to buy individual mining stocks, it’s absolutely necessary to understand what stage of development the company you’re buying is in, and the associated risk vs. reward potential.
Generally speaking, you’re going to get less risk with a diversified large-cap company that has many projects. But you’re also going to be buying a company that needs to spend a lot of money to develop those resources, and is depleting them as gold is pulled out of the ground.
You’ll typically take on less operational risk with a precious metals royalty & streaming company, and there are a few options across the market cap curve. These companies essentially purchase future cash flows from mining projects by investing in them early on. Even a small or mid-cap gold streaming company can have a share in over 200 projects, so they’re pretty well diversified. Some even pay a dividend.
Then, for the speculators, there are the pure exploration companies. These companies have an idea of where gold, silver and/or copper are, but they haven’t yet done enough work to get a firm estimate of the size and value of the precious metals deposit.
They are sort of like the early-stage biotech stocks of the mining world. If they hit it, the stock can surge in value. But if they miss, well, things can get pretty ugly pretty darn quickly.
There are, of course, many more considerations when investing in gold and gold mining stocks. That’s why I recently hosted a webinar on the subject, which elaborates on the strategy further and introduces readers to gold mining stocks like those I currently cover in Cabot Small-Cap Confidential.
Like I said earlier, I’m not a gold bug, so this advisory service isn’t just focused on gold. I cover numerous companies developing cutting-edge software, medical devices and that are breaking new ground in other industries as well.
But with the price of gold currently pulling back for what may be short-term reasons, it’s a good time to get caught up on the precious metal’s demand drivers, and how to play it.
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