Can the strong upward trend of gold mining stocks continue? Tonight's non-farm payroll data will determine the outcome

According to Zhitong Finance APP, as the U.S. non-farm payroll report for August is about to be released, investors betting on the strong momentum of gold mining stocks will face a test.

As of July this year, the VanEck Gold Miners ETF has continuously experienced capital outflows, as investors are concerned that the resilience of the U.S. economy will end the record rally in gold, leading them to take profits. However, the weak U.S. non-farm payroll data for July, along with pressure from U.S. President Trump, has led the market to almost lock in a rate cut by the Federal Reserve later this month. With increasing economic uncertainty and rising expectations for rate cuts, the safe-haven attributes of gold have attracted investors to increase their bets. This prompted investors to pour $531 million into the VanEck Gold Miners ETF last month, setting a record high since November 2023.

Data shows that the VanEck Gold Miners ETF has risen about 90% year-to-date, with many of its constituent stocks experiencing triple-digit gains. The only gold mining company in the S&P 500 index—Newmont Corporation (NEM.US)—has seen its stock price double this year, making it the third-largest gainer in the index.

Ryan McIntyre, Senior Managing Partner and Senior Portfolio Manager at Sprott Inc., stated that this shift in investment preference also represents a leveraged bet on the outlook for gold to some extent. He pointed out that for every 1% increase in gold prices, gold mining stocks tend to rise by 2%.

This is validated by the price movements of the VanEck Gold Miners ETF and the performance of many of its constituent stocks. Gold and silver prices have risen at least 33% this year, while Barrick Gold (GOLD.US) in the ETF has seen its stock price rise by 75%, Agnico Eagle Mines' stock price has increased by 90%, and Discovery Silver Corp.'s stock price has skyrocketed by about 500%.

Gold mining stocks outperform the S&P 500 index

Analysts at JP Morgan expect that as the Federal Reserve's rate cuts attract more investors to buy commodity ETFs tracking gold, the upward trend in gold will continue. This forces funds to purchase underlying assets, further boosting demand. Analysts also warned that Trump's pressure on the central bank will have the same effect. They stated, "We believe that any weakening of the Federal Reserve's independence could have significant long-term implications for gold prices."

The inflow of funds into gold-related ETFs accelerated significantly at the end of August. According to a report released by BMO Capital Markets analyst Helen Amos on Tuesday, investors bought $3.9 billion in gold-related ETFs last week, marking the "strongest single-week inflow" since Trump announced the comprehensive tariff plan in April.

Dean Curnutt, CEO and founder of Macro Risk Advisors, said on Tuesday: "You have to find some assets that are different from the mega-cap tech stocks." He added that gold has multiple tailwinds, including the ongoing purchases by global central banks—currently, central banks around the world hold more gold than U.S. Treasuries.

However, investment strategist Jim Paulsen warned that investors should be aware that if the macro environment changes, the market could experience a rapid sell-off when rushing into gold mining stocks. Another risk is that gold mining stocks may not provide a solid hedge against market risks like gold itself, as the fate of mining companies is also subject to economic conditions.

Ryan McIntyre stated that investors are currently buying both physical gold and mining stocks. Hugo Ste-Marie, head of portfolio and quantitative strategies at Canadian Imperial Bank of Commerce, said: "In the context of rising uncertainty in economic policy and a potentially declining U.S. dollar index, gold prices should remain strongly supported. Gold stocks still have more room for upside."