Just a few days ago, we published our latest gold-focused issue of Crisis Investing. With the metal pushing to fresh all-time highs, I figured it was the perfect time to highlight one of the strangest market disconnects I’ve seen in years.
Take a look at today’s chart below. It shows monthly fund flows for the VanEck Gold Miners ETF (GDX)—one of the largest gold mining equity funds in the world, holding major producers like Barrick (GOLD), Newmont (NEM), and AngloGold Ashanti (AU).
What jumps out immediately is the sea of red. Over the past year, GDX has suffered relentless outflows. This year alone, investors have pulled about $2.5 billion.
It looked like things might finally be turning in August, when GDX recorded a $530 million inflow—the first meaningful one in months. But the relief didn’t last. By September, ~$630 million had flowed back out.
That’s baffling. Remember, gold has been hitting one all-time high after another this year. Just this morning, LBMA data showed the price nearing $3,900 per ounce.
Meanwhile, physical gold ETFs are seeing historic inflows. In mid-September, the GLD ETF—the largest physical gold ETF—took in $2.2 billion in a single day. That was the largest one-day inflow in its 21-year history.
Think about that: investors have been racing to buy gold at record highs well above $3,500 per ounce... while dumping the companies that produce that very gold.
It makes no sense.
After all, gold miners earn revenue in gold. When gold prices surge—as they have this year, up nearly 50%—and costs stay roughly the same, margins don’t just rise, they explode.
Simple math: if it costs $1,400 to mine an ounce of gold and you sell it for $2,400, you pocket $1,000. But if the price jumps to $3,500, profits leap to $2,100 per ounce—a 110% increase.
This is the leverage we’ve talked about time and time again in these pages—and it’s exactly why so many gold producers are minting money right now thanks to gold’s remarkable run.
And yet the sector remains unloved. So much so that mining stocks as a group—nearly half of which are precious metals companies, or at least have meaningful exposure—now make up barely 1% of global equities. That’s the lowest share in more than 120 years. (I showed this in a recent Chart of the Week.)
So what gives?
I think this is a classic case of investor behavior: chasing what’s already moved (physical gold) while ignoring what hasn’t (miners). It’s the financial equivalent of buying high and selling low—completely backwards.
That’s not to say gold is expensive—it isn’t; as we explained in the latest Crisis Investing, it remains undervalued. But it borders on absurd that the very companies benefiting most from record gold prices are still being dumped.
For those paying attention, the disconnect is a gift.
It won’t last forever, though. Eventually, capital will rotate from bullion ETFs into miners—and when it does, the upside could be explosive.
Regards,
Lau Vegys
With short paper traders that you can set your watch with every morning at 8 for along time in the end it hasn't worked. Denial is a natural reaction that too will pass.
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