Gold Mining ETFs in the Spotlight

The list of best-performing ETFs in the first eight months of 2025 shows an undeniable and surprising trend. Five out of the top ten – including the overall winner – are associated with gold mining, while a further three are tied to silver mining. Clearly, this has a lot to do with the enormous rally we’ve been seeing in both metals this year, which raised gold prices by 28% as of mid-August, and silver prices by 32% in the same period.

What’s surprising is the level of interest that’s developed around mining stocks as opposed to funds that actually hold the metal. Since 2011, when gold prices plummeted, the financial world has learned to be suspicious of mining companies. As Van Eck puts it, “In the past, gold mining companies indulged in wanton value destruction” in the form of excessive borrowing to fund new projects, and of ill-judged drilling in low quality mines. The result was that mining firms consistently underperformed the gold price itself – even, sometimes, during bull markets.

Why is Barrick Gold Important?

Take, for example, Barrick Gold – the world’s biggest gold producer in August 2013. In that month, the firm announced a massive $8.7 billion writedown on its Pascua-Lama project between Chile and Argentina. (This means they admitted the mine was worth much less than its supposed value.) Consequently, markets lost confidence in company decision making, and share prices plummeted. Behind the scenes, the firm’s due diligence into the environmental and political impact of its mine had proved insufficient. The declining prices of metals had also contributed to that crisis. Indeed, gold mining ETFs are closely connected with gold prices, but in a leveraged way. This implies they tend to outperform during bull markets, but may crash on the arrival of bear phases. Indeed, the recent gold rally attracted attention to mining stocks for exactly this reason

Why, though, were traders no longer suspicious of these instruments?

What Has Changed? Matthew Fist of Firetrail says mining firms suffered in the past – particularly in the 2000s – due to overpaying for mining assets. This tends to happen when purchases are made at the heights of bull markets. It’s at these times that valuations are at their peaks, which can quickly change when demand weakens, leaving shareholders in the lurch. Another problem was low-grade mines, which only contain a small quantity of target metal per tonne of rock. When miners insist on using these mines, much more rock has to be moved and processed to retrieve the same amount of metal. This means higher costs for labour, energy, and chemicals per ounce of gold. Again, the temptation to utilize these mines is mostly when gold prices are high. Once they fall, the mines become uneconomical and may have to be shut down. The good news is that “Gold miners have learnt their lessons and are much better custodians of capital today”, says Trium Capital. One thing this means is that companies have begun to prioritize generating revenue over maximizing output. Capital spending has also been more muted in recent years, as miners enforce tighter balance sheets. As of November last year, then, the average debt carried by the major miners was only 14% of net assets.

Macro Tailwinds

2024 was a positive year for gold prices, which rallied 35% in only the first ten months, but mining stocks did not record parallel gains. That’s despite the fact that “gold miners should mathematically offer greater leverage to gold than an investment in the physical metal”, in Fist’s words. This leverage is made possible by fixed production costs, though, so it’s drained away by poor capital discipline. It also relies on market sentiment to amplify revenue gains into equity valuations. 2025 has proved itself different. From the beginning, this year was characterized by economic uncertainty stemming from trade tensions and geopolitical conflicts. All of this stoked demand for havens. If the fundamentals were supporting a continuation of gold’s bull run, traders wanted to ride that wave to its fullest, which is done through mining stocks. For a proof of this, consider Silver Miners ETF (SIL ETF), which, at the end of March this year, had risen 27% year-to-date, while silver itself had only gained 18%. In the backdrop, central banks have been net gold buyers since 2023, providing a solid foundation for demand – independent of the vagaries of market sentiment. “The structural underpinning of the gold market”, explains Trium, “is stronger now that it has found a significant, more resilient new buyer in non-US-aligned central banks”. At the same time, inflation concerns still persist, fanning the demand flames even more.

Conclusion

The new efficiency and discipline of gold miners is transforming their reputation in the financial community. “Gold miners are expanding their profit margins, generating cash and embarking on share buybacks”, wrote Van Eck in April 2025. “What’s more, many have strong balance sheets. Yet they still trade at valuations below historical averages”. This turnaround has eased traders’ worries on the score of these leveraged instruments, which has unleashed their dormant power. Mining ETFs have been drawing from the well of accelerating prices, making them vulnerable to an inevitable slowdown. The newfound capital discipline in the sector, however, has limited their potential downside, buttressed by a solid wall of central bank demand. The de-dollarization trend underway in Asia looks set to keep that wall strong and durable. Gold-holding ETFs are, however, more stable than the miners. These funds aren’t as vulnerable to operational risks, changes in market sentiment, or sudden bankruptcy. Consequently, their prices follow spot gold prices more faithfully, without the benefit (and risk) of price leverage. Therefore, they are more suited to preserving wealth than producing maximal gains.