Portfolio manager explains that those seeking leveraged access to gold prices can gain it through specific equities
Gold investors in 2025 felt their fair share of joy. Direct investments in gold bullion returned around sixty per cent last year, depending on the exact vehicle of exposure. Comparison, though, is the thief of joy and one gold strategy managed to outperform direct bullion exposure by a significant magnitude. An ETF offering an index of 20 gold mining equities managed to return 168 per cent over the same year, on the simple principle that gold mining stocks offered leveraged exposure to the underlying gold price.
Mike Dragosits leads the management of that fund, the Harvest Global Gold Giants Index ETF (HGGG). The Portfolio Manager at Harvest ETFs explained that by focusing on specialized gold miners, his firm has tried to create an equity play that offers leveraged access to gold prices. He explained how that dynamic has manifested in outperformance as gold prices have risen, and how that has impacted returns during the recent downturn in gold. He outlined why advisors may want to consider gold equities as exposure to this asset becomes a source of alpha, as well as traditional defense.
“The difference between physical bullion and gold equities is that these companies are financed through equity and debt, and by carrying that debt they’re leveraging themselves to the actual price of the material they’re mining,” Dragosits explains. “You have that natural operational leverage to gold prices… We’ve seen that over the last couple of years as gold prices have rocketed higher.”
Leverage does cut both ways. The recent drop in gold prices experienced at the end of January has also been exacerbated in the shares of these gold mining stocks. He argues, though, that while gold equities may offer a kind of amplified exposure, the underlying reason investors seek gold is for stability and ballast against geopolitical risk. That tailwind should remain intact, in his view.
In addition to their leverage to gold prices, these equities have benefitted from a huge cost decrease from one of their key inputs: oil. While it’s something of an oversimplification, many of these companies are essentially turning oil into gold, through the immense amount of energy that mining requires. Dragosits watches the ratio of oil to gold prices to help guide some of his expectations for these stocks.
Broad mining equities have also risen significantly over the course of this recent gold run. Some of that has been driven by concurrent demand for base metals like copper, while some has been tied to retail froth around silver. Dragosits explains that his ETF is designed to specialize in gold miners, to exclude as much exposure to other metals as possible. While he notes that there will be some exposure to other metals, the ETF aims to purify their exposure to ensure they capture gold price and not the drivers of other commodities.
Many other metals, be they base or precious, have prices more tied to industrial applications. That can ebb and flow with economic cycles. While gold is used in certain industries, notably jewellery, demand is more tied to gold as a store of value. That results in different price drivers that have less correlation with broader economic or stock trends.
While non-correlation is one of the goals behind a gold investment, the point is often made that gold equities are still equities and retain a degree of beta to stock market sentiment. Dragosits acknowledges that gold equities will have a higher correlation to equities than gold bullion, but argues that gold miners will have less correlation than a more broad mining stock. What makes that higher beta worthwhile, in Dragosits’ view, is that they have exposure to margin expansion, not just price appreciation. As margins expand and gold miners generate excess cash flow, they can engage in more investor-friendly behaviours like share buybacks or dividend payouts. Rather than gold itself, which pays nothing, holding a stock aims to provide access to cash flow through gold.
Gold equity exposure and direct bullion exposure may be worth viewing through different lenses for different investors. While both offer access to the price of the yellow metal, the cases for each asset class diverge and leave advisors and their clients with a choice.
“Make sure you're comfortable with the operational risks, you're comfortable with the management team that you're looking at, and comfortable with that leverage to the gold price,” Dragosits says. “I still believe, even though we've had that wobble in gold prices, the case is still there for gold… The macro picture, the geopolitical picture, the internal politics picture in the US, I don’t think any of those go away. We’re still in a heightened state and that continues the necessity of holding something that could protect you from those risks.”
