As the US August non-farm employment report approaches, investors betting on the continued strength of gold mining stocks face a critical test. Through July this year, the VanEck Gold Miners ETF experienced persistent outflows as investors worried that US economic resilience would end gold's record-breaking rally, prompting profit-taking activities. However, weak US July employment data and pressure from President Trump have led markets to nearly lock in Federal Reserve rate cuts later this month. With growing economic uncertainty and rising expectations for rate cuts, gold's safe-haven appeal has attracted investors to increase their bets. This drove investors to pour $531 million into the VanEck Gold Miners ETF last month, marking the highest level since November 2023.

Data shows the VanEck Gold Miners ETF has surged approximately 90% year-to-date, with many of its constituent companies posting triple-digit gains. Newmont (NEM.US), the only gold mining company in the S&P 500, has doubled in price this year, becoming the third-best performing stock in the index.

Ryan McIntyre, Senior Managing Partner and Senior Portfolio Manager at Sprott Inc., noted that this shift in investment preference represents a leveraged bet on gold's prospects. He pointed out that gold mining stocks typically rise 2% for every 1% increase in gold prices. This relationship is evident in the VanEck Gold Miners ETF's price movement and the performance of many of its holdings.

Gold and silver prices have gained at least 33% this year, while Barrick Gold (GOLD.US) in the ETF has risen 75%, Agnico Eagle Mines has climbed 90%, and Discovery Silver Corp. has soared approximately 500%.

Gold mining stocks have outperformed the S&P 500. JPMorgan analysts expect gold's rally to continue as Fed rate cuts attract more investors to commodity ETFs tracking gold. This forces funds to purchase underlying assets, further boosting demand. Analysts also warn that Trump's pressure on the central bank will have the same effect.

"We believe any potential weakening of Federal Reserve independence would have significant long-term implications for gold prices," analysts stated.

Inflows into gold-related ETFs accelerated noticeably in late August. According to a Tuesday report by BMO Capital Markets analyst Helen Amos, investors purchased $3.9 billion worth of gold-related ETFs last week, marking the "strongest single-week inflow" since Trump announced comprehensive tariff plans in April.

"You have to find assets that are different from mega-cap tech stocks," said Dean Curnutt, CEO and founder of Macro Risk Advisors, on Tuesday. He added that gold has multiple tailwinds, including continued purchases by global central banks, which now collectively hold more gold than US Treasuries.

However, investment strategist Jim Paulsen warns that investors rushing into gold mining stock trades should be aware that markets could see rapid selloffs if the macroeconomic environment changes. Another risk is that gold mining stocks may not provide as solid a hedge against market risk as gold itself, since mining companies' fortunes are also subject to economic conditions.

McIntyre noted that investors are currently buying both physical gold and mining stocks simultaneously. Hugo Ste-Marie, Head of Portfolio and Quantitative Strategy at Scotiabank, stated: "Against the backdrop of rising economic policy uncertainty and a potentially weakening US dollar index, gold prices should maintain strong support. Gold stocks still have greater upside potential."