Stock market volatility continues to shape investor sentiment as early 2025 progresses, presenting both challenges and opportunities amid rising inflation concerns. A recent surge in gold mining shares contrasts sharply with the broader market's mixed performance, highlighting how geopolitical tensions and economic uncertainty are leading many investors to re-evaluate their portfolios.
Shares of gold miners have seen remarkable gains this year, with the VanEck Gold Miners ETF, valued at around $14 billion, up nearly 20%. Notably, all but four stocks within this 56-member fund have risen, as the price of gold itself climbed 12%. Steven Schoffstall, director of ETF product management at Sprott Asset Management, remarked, "From 2014 till now, gold equities have underperformed pretty drastically. We do think there is a sustained period here for gold and silver." Analysts attribute this upward trend to various factors, including rampant buying from global central banks and heightened geopolitical instability.
Indeed, gold has emerged as a preferred haven asset, particularly as worries about rising inflation intensify. According to analysts at Goldman Sachs, central banks have significantly increased their gold purchases since the outbreak of war in Ukraine, reflecting broader anxieties about potential economic disruptions. Last week, Goldman raised its gold price forecast to $3,100 per ounce, signaling strong continued demand.
This demand push for gold equities has outperformed the indices typical of past markets. For example, Newmont Corp., the top performer within the S&P 500 Materials Index, has experienced an 18% rise, making it clear to market watchers like Schoffstall just how undervalued many of these stocks have been compared to the broader market.
Yet this positive trend for gold miners contrasts with broader market indices. On Monday, the Canadian S&P/TSX composite index fell 150 points, reflecting declines across energy, base metals, and technology sectors. The market reaction was compounded by falling oil prices, which dipped below $70 per barrel, as well as fluctuated expectations for inflation's impact on spending.
U.S. markets reflected mixed emotions as well, with the Dow Jones Industrial Average inching up slightly by 4.95 points, but the S&P 500 saw losses of 55.68 points, exacerbated by concern over President Donald Trump's tariff announcements affecting Canada and Mexico. These tariffs are expected to have various downstream impacts on pricing, with many analysts noting how they could lead to increased consumer costs.
Heightened inflation expectations have begun to impact consumer sentiment as well, with U.S. long-term inflation outlook hitting its highest level in nearly three decades, stirring fears of rising prices across the board. According to Clark Bellin, president and chief investment officer at Bellwether Wealth, recent economic reports have already indicated slowdowns: "Friday’s PCE for January will be extra important for markets because it will help to confirm if inflation did spike at the start of 2025, since the other January inflation readings came in very strong.”
The market’s response to these economic markers, particularly the awaited Personal Consumption Expenditures (PCE) price index, will be key for investors as they navigate the turbulent economic waters. With consumption expected to slow amid rising prices, companies like Home Depot and Walmart are already experiencing shifts, with consumers opting for smaller, less expensive home improvement projects.
Overall, the interplay between inflation, stocks, and geopolitics sets the stage for what could be a turbulent first half of 2025. Many investors are shifting toward gold and other precious metals as safe havens against rising inflation and geopolitical risks, with some analysts recommending increased allocation to these sectors as they perceive future stability.
Nevertheless, the broader stock market remains precarious. Major companies such as Zoom have recently reported subpar earnings forecasts, hinting at potential weaknesses as firms navigate the transition back to traditional working models and the associated spending adjustments. Investors are left watching closely, mindful of the effects of tariffs on their portfolios and the national economic indicators due out this week.
Needless to say, the market is braced for volatility, with many investors adjusting their strategies to reflect the changing environment. Despite challenges, certain sectors, particularly gold mining, are showing remarkable resilience and may represent potential wise investment choices amid current uncertainties.