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Investing.com -- Gold miners have outperformed in 2025, with the GDX (NYSE:GDX) Index rising about 20% more than gold in total shareholder return (TSR), according to UBS.
However, in a note on Monday, the bank questioned whether this momentum can be sustained.
Gold miners such as Iamgold Corp (NYSE:IAG). (+17% year-to-date), Barrick Gold (NYSE:GOLD) (+22.8% YTD), and Newmont Corp. (+26.1%) have rallied so far this year, boosted by a surge in the yellow metal.
“Gold miners offer operational leverage to gold price upside, potential growth and dividend yields,” UBS wrote.
However, they stated that persistent cost and capital expenditure inflation, along with pressure to replace depleted reserves, remain key challenges.
Over the past decade, inflation has largely offset gold price appreciation, leading to the continued underperformance of the GDX Index relative to gold, particularly in the last five years.
Despite these historical struggles, UBS notes that expectations may now be more realistic.
“Whilst some companies will inevitably miss production guidance, do expectations have to be more realistic after years of disappointment?” the analysts questioned.
The bank believes that with gold trading above $3,000 per ounce, consensus earnings estimates are almost certain to be revised higher in the coming weeks, which could provide further support for the sector.
Still, UBS remains skeptical that gold miners will generate superior long-term returns compared to gold itself or royalty companies.
The GDX Index has underperformed gold by roughly 40% since 2019, with UBS attributing this primarily to multiple compression rather than operational struggles.
The index currently trades at a ~30% discount in price-to-earnings (P/E) and ~10% discount in enterprise value to EBITDA (EV/EBITDA) relative to 2019 levels.
“Near-term momentum in gold miners has been strong,” UBS said, noting the GDX’s relative strength index (RSI) near 70.
“However, with consensus earnings momentum likely to remain positive, aggregate guidance more realistic and valuations close to cyclical lows, we continue to see attractive risk vs reward in the gold miners,” stated UBS.