Gold’s rally has not run its course — and miners are sitting on a capital allocation moment
NEW YORK (January 5) Gold’s powerful rally has reignited a long-dormant debate among investors: is it better to own the metal itself, or the companies that produce it?
According to Chris Mancini, co-portfolio manager of the Gabelli Gold Fund (GOLDX), the answer may finally be tilting decisively toward the miners—provided they make the right choices with the tidal wave of free cash flow now building on their balance sheets.
While some observers have begun warning of speculative excess, Mancini said the conditions that have driven gold prices to record highs above $4,400 an ounce remain firmly in place, supporting higher prices and robust earnings.
He said he expects U.S. interest rates to trend lower this year, regardless of who leads the Federal Reserve, while economic momentum softens. At the same time, central bank demand—particularly from China—remains a structural feature of the market.
That backdrop, he says, is now translating directly into margin expansion for producers.
Free cash flow is surging — and the market is just starting to notice
At current prices, Mancini says the gold mining sector is generating extraordinary amounts of free cash flow, yet broad market valuations still reflect skepticism born from years of underperformance and capital destruction.
He points to the world’s largest gold producer as a prime example. At prevailing gold prices, Mancini estimates Newmont could generate close to $10 per share in earnings next year—a figure that closely approximates free cash flow. Balance sheets across the sector, he adds, have largely been repaired, with many miners now carrying little to no net debt.
Despite that improvement, equity valuations continue to imply a much lower gold price environment than what the market is currently delivering.
“That disconnect,” Mancini argues, “is where the opportunity still lies.”
Dividends, not buybacks, are the missing catalyst
While Mancini acknowledges that share buybacks have made sense while gold stocks remained deeply undervalued, he believes the sector is approaching a critical inflection point.
As valuations normalize and free cash flow continues to rise into 2026, Mancini says mining companies should pivot decisively toward larger, more visible dividends.
Buybacks, he notes, do little to attract new investors because the market does not assign them a clear yield. Dividends, by contrast, demand attention.
“A gold stock with yield and growth is fundamentally different from a bar of metal sitting in a vault,” Mancini says.
In a world where cash yields are falling and inflation remains sticky, he believes investors will increasingly seek income-producing alternatives.
If major miners begin offering 3%, 4%, or even higher dividend yields—supported by growing earnings—the sector could suddenly become competitive with traditional income assets.
Mancini suggests that, instead of deploying billions toward repurchasing shares, large producers could sustain dividends of $4 to $5 per share at current metal prices—a move he believes would materially change how the market values gold equities.
For gold investors, the next phase of the bull market may not just be about higher prices—but about income, he said.
A sector still discounted by skepticism
Despite improving fundamentals, Mancini says investors remain deeply cautious toward gold miners, scarred by years of operational missteps and poor capital discipline. In 2025, the NYSE Arca Gold BUGS Index (HUI) posted an annual gain of 154%, finally outperforming gold; however, looking beyond last year’s rally, the mining sector has significantly underperformed the broader S&P 500 over the past decade.
Mancini said investor skepticism is precisely why dividends matter.
“The market wants to see real money — cash in hand,” he says. “Not just promises of capital return.”
He draws parallels to other cyclical sectors, including energy, where consistent dividend policies ultimately helped drive valuation recoveries after long periods of investor mistrust.
Although mining companies are starting to put their money to work, Mancini said he does not see signs that the industry is repeating the excesses of the last cycle. He pointed out that large, high-risk megaprojects remain absent from development pipelines, and management teams appear focused on balance sheet strength rather than aggressive expansion.
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