Many ASX share sectors are facing uncertainty because of the tariffs imposed by the US on most goods coming from outside its borders, particularly China. However, one sector could be on course to deliver much stronger profits soon: ASX gold shares.
The ASX iron ore shares of BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Ltd (ASX: FMG) often get a lot of attention when it comes to ASX mining shares.
But 2025 could be the year of the gold miners because of the enormous run-up of the gold price in the last several months.
Fund manager L1 Capital noted that the gold price rose around 19%, or US$500 per ounce, in the three months to 31 March 2025 amid market instability related to "weaker global economic activity and risks relating to trade policies."
Why this is a great time to look at ASX gold shares
L1 still sees a favourable outlook for gold in the medium term, supported by central bank buying and the elevated macroeconomic and geopolitical risks.
Rising market uncertainty is "highlighting the role of gold as an effective diversification tool, which has historically had lower correlation with other asset classes."
The fund manager suggested the valuations of gold producers have continued to lag, despite the increase in gold prices.
L1 then said:
We expect gold equities will begin to rally significantly over the next 1-2 years as their margins expand due to gold prices rising much faster than input costs. We find it unusual that in many cases, the share prices of these gold stocks have barely increased, despite a likely increase in their earnings and cashflows of 200-300%. We believe these stocks offer a positive asymmetric return profile, along with effective diversification in a less predictable world.
Which stocks are attractive?
L1 recently talked about two ASX gold shares that it liked, including Westgold Resources Ltd (ASX: WGX). This business is a Western Australia underground gold miner.
L1 is attracted to it because it's at an "inflection point" and it's "building material scale and expanding asset life."
The company's FY24 production of around 230,000 ounces is expected to grow towards 550,000 ounces after FY26, thanks to a combination of organic growth and a recent merger with Karora Resources.
L1 also said that Westgold is upgrading the quality of its portfolio by narrowing its focus on scalable operations due to its investment in exploration. L1 expects this to result in a more efficient cost structure over time, generate more cash flow, and make the ASX gold share a more resilient business.
