CONTRIBUTORS
Steve Land
Portfolio Manager,
Franklin Equity Group
1. What has driven gold prices higher, created volatility and what is next?
Land: Gold has historically performed well during periods of financial and geopolitical stress, and recent trade tensions, global conflicts and fiscal uncertainty across major economies have reinforced this trend. Structurally, elevated government debt, persistent fiscal deficits, and greater tolerance for inflation are undermining confidence in fiat currencies. High levels of leveraged speculation particularly in China, helped to push prices higher before a sharp correct to end of January.1 Despite the record declines, we still see fundamental support for elevated gold prices given constrained supply and growing demand.
Gold is supported by tight supply and demand dynamics
Source: World Gold Council. December 31, 2025. Important data provider notices and terms available at www.franklintempletondatasources.com.
Gold Prices Versus Gold Miners since 2000
Sources: FactSet, LBMA, American Stock Exchange, January 31, 2000 – February 3, 2026. Gold price is shown by Spot USD/troy oz and the gold miners by NYSE Arca Gold BUGS Index. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future performance.
2. Why are miners lagging bullion?
Land: Central banks and bullion-backed ETFs have fueled gold's rally, allowing bullion prices to rise materially faster than flows into mining equities. Many miners trade below historic multiples, with elevated free-cash-flow yields and attractive enterprise value (EV)/cash-flow multiples.2 We think valuations have been trailing gold spot prices by ~20%3 for the past couple years—a striking disconnect.
3. Is the valuation gap justified?
Land: We don’t think so. The disconnect reflects investor perception rather than fundamentals. Investors still remember past cycles of cost inflation, capital misallocation, and dilution, but in our view the industry has changed. Today, miners have stronger balance sheets, better capital discipline and higher shareholder returns. At current gold prices, miners offer real operational leverage, with earnings and free cash flow climbing faster than the bullion price. Add continued macro tailwinds and gold’s negative correlation with the US dollar, and the case for miners looks well supported.
4. Do fundamentals support higher gold equity valuations?
Land:In our view, absolutely. Elevated gold prices have driven exceptional earnings and cash flow growth. Third-quarter (Q3) 2025 delivered record profits for many producers, with Q4 likely to exceed those levels as gold averaged ~US$4,150/oz, up ~US$700 quarter-on-quarter (q/q) and ~US$1,500 year-on-year (y/y).4 Revenues should rise ~20% q/q and ~55% y/y, while operating costs have been tracking less than 10%5, materially expanding margins. With flat production, the combination of strong cash generation and attractive valuations has also powered mergers and acquisitions (M&A), helping miners unlock value y/y, replace reserves and position for long-term growth.
5. How resilient are miners if gold prices decline?
Land: While elevated bullion prices warrant some caution, we estimate that miners have a substantial buffer. Sentiment can shift—think rising rates, easing inflation or declining geopolitical tensions—but we estimate gold prices would need to fall below ~US$3,500/oz before sector economics would start to resemble prior down cycles. Higher gold prices improve access to capital, increasing the exploration and development potential as well as project viability.
The bottom line
We believe gold miners are supported by strong balance sheets, attractive valuations and multiple catalysts, including M&A. When combined with an uncertain fiscal and macro backdrop, we remain constructive on gold and gold equities heading into 2026.
Fiat currency: Fiat currency or money is a type of government-issued currency, authorized by government regulation to be legal tender. Typically, fiat currency is not backed by a precious metal, such as gold or silver, nor by any other tangible asset or commodity. All major global currencies are fiat money.
Endnotes
- Source: Bloomberg. January 30, 2026.
- Source: FactSet and Bloomberg. January 27, 2026.
- Source: Franklin Templeton research and Bloomberg. January 27, 2026.
- Source: FactSet / Bloomberg. December 31, 2025. Gold averaged US$4,150 / oz in 4Q25, compared to US$3,458 / oz in 3Q25 and US$2,661 in 4Q24.
- Source: FactSet and Bloomberg. December 31, 2025.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments. To the extent the strategy invests in a concentration of certain securities, regions or industries, it is subject to increased volatility. Investments in companies engaged in mergers, reorganizations or liquidations also involve special risks as pending deals may not be completed on time or on favorable terms. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.