Gold miners are not experiencing the same level of success as the precious metal they extract from the ground. Could predictions of a significant surge in prices ahead alter that?

Despite the significant increase in gold prices over the past year, the benchmark gold-mining index has only experienced a modest rise, amounting to half of that.

Gold stocks often tend to underperform compared to the rise in bullion prices. This is because the expenses and various factors associated with mining gold make investing in equities a riskier proposition than investing in the metal itself.

However, there is a growing sense of optimism among analysts regarding the future of gold stocks. They are predicting that metal prices will continue to rise, which could greatly benefit miners by increasing their profit margins. This comes at a time when many miners have been grappling with rising costs.

According to UBS, gold is projected to reach $2,800 per troy ounce by the end of 2025. According to Citi’s projections, the price of gold is expected to reach $3,000 per ounce in the near future.

The price of gold has increased to approximately $2,380 per ounce, compared to around $1,800 per ounce 18 months ago.

Recently, investors have expressed concerns regarding the ability of certain miners to meet their gold production targets at the projected costs, leading to a decline in stock prices.

In Australia, a significant gold producer globally, miners have encountered operational difficulties, such as adverse weather conditions. An analyst expressed skepticism about the ability of most operations run by Evolution Mining to meet the company’s guidance for the year through June, stating that it would require a significant effort.

According to UBS analyst Levi Spry, the potential of a gold price reaching $2,800 per ounce far outweighs any concerns about miners’ production and costs.

Spry has increased his price targets for a range of Australian gold stocks that he closely monitors. He strongly advises investors to consider buying these stocks, including Evolution. He changed his recommendation on Regis Resources from sell to buy.

There is currently a significant change happening in gold prices, according to Spry. This shift is driven by the increased demand from central banks and individual investors, who are purchasing gold bars and coins due to their worries about war and the economy.

Many others are also showing interest in gold-mining stocks. RBC Capital Markets recently raised its targets on the shares of several gold producers, following an increase in its own price forecasts for the precious metal. Analysts based in Sydney have observed that Australian gold equities have not performed as well as expected given their leverage to the commodity. They believe that this situation presents a potential opportunity for investors to make a profit.

At current prices, margins are already at or near their highest levels. During the final quarter of 2023, industry costs reached a record high, averaging $1,342 per ounce, as reported by the World Gold Council, a trade association.

However, there are numerous factors indicating that gold stocks may not perform well, even if metal prices reach new record levels.

According to analysts at Liberum in London, the rise in gold exchange-traded funds has provided investors with a more convenient way to directly access the gold market. This could potentially reduce the necessity of relying on stocks for investment purposes. According to experts, the productivity of gold mines has decreased significantly over the past two decades, which has had a negative impact on equity returns.

According to Tom Palmer, the chief executive of Denver-based Newmont, the world’s largest gold miner, the decoupling of gold stocks from the gold price can be attributed to cost inflation resulting from the Covid pandemic and Russia’s invasion of Ukraine. Newmont shares have experienced a modest increase of approximately 1% over the past year.

“The gold-industry cost curve has been steadily increasing by $200-$300 per ounce, which has led to a decline in the performance of gold equities. Investors are concerned about the ability of gold companies to generate sufficient free cash flow to sustain their operations, invest in their business, and provide returns.” Palmer made a statement during an industry event on Thursday.

According to him, ETFs and the precious metal itself have become increasingly attractive to many people.