Gold mining companies invest heavily in land, equipment and personnel to extract and process gold. Their costs remain stable, regardless of the price of gold. So when the price of gold soars, as it is currently doing, their profitability can increase significantly.

In the first quarter of 2024, global gold demand climbed 3% year-on-year to 1,238 metric tonnes. This was the most active quarter since 2016, according to the World Gold Council (WGC). This increase is due to intense trading on the over-the-counter (OTC) market, the search for safe havens due to geopolitical and economic uncertainty, ongoing purchases by central banks and strong demand from Asia. In March and April, these factors drove gold prices higher, reaching a record average of $2,070 per ounce in the first quarter, with an all-time high of $2,431.

Central banks around the world, notably those in China and India, were particularly active, adding 290 tonnes to their reserves, up 1% on the previous year and 69% on the five-year average. This quarter marks their best performance since 2000, according to WGC data.

However, despite these new gold price records in 2024, mining companies have yet to reach the profitability levels of 2011.

20-year chart

Source: Bloomberg

5-year chart

Source: Bloomberg

With current high gold prices, some leading fund managers anticipate a narrowing of this gap in the months ahead.

Investing in gold is not suitable for risk-averse investors; however, placing funds in leading gold mining companies can represent an attractive option for those prepared to accept a certain level of risk. To identify the most liquid companies in this sector, the NYSE Arca Gold BUGS Index (HUI) is a key tool.

The BUGS index, which stands for Basket of Unhedged Gold Stocks, is dollar-balanced, with the exception of the three largest companies, which benefit from a higher weighting. It focuses exclusively on gold mining companies that do not hedge their production beyond 18 months, thus offering greater sensitivity to short-term fluctuations in gold prices.

The HUI index is often compared with the Philadelphia Gold and Silver (XAU) index, the latter including both gold and silver producers, while the HUI is limited to gold producers. To be included in the NYSE Arca Gold BUGS index, companies must be listed on exchanges such as NYSE, NYSE American or Nasdaq, and meet specific criteria of market capitalization, trading volume and minimum share price.

At present, the index comprises some twenty major public gold producers, including major players such as Newmont Corporation, Barrick Gold, Agnico Eagle Mines and Franco-Nevada Corporation. The index is revised quarterly, in March, June, September and December. This framework provides investors with an overview of the options available for investing in the gold sector, taking into account the level of risk and potential market fluctuations.