Investing.com -- RBC Capital Markets analysts have highlighted five key developments shaping the gold equities sector, offering insight into the factors influencing investor sentiment and market performance.

A major concern raised by RBC is the deteriorating flow of funds into gold equity exchange-traded funds (ETFs), despite strong year-to-date gains in both gold prices and gold mining stocks.

While gold prices have climbed nearly 12% this year, and the VanEck Gold Miners ETF (NYSE: GDX ) has risen by more than 15%, equity ETF outflows have reached $2 billion just two months into 2025.

This follows a record annual outflow of $2.4 billion in 2024. The divergence between strong performance and persistent investor withdrawals remains unexplained, but generalist interest in gold equities appears low, compounding the sector’s selling pressure.

Another focus is on capital returns, a topic that has garnered increasing investor attention. With the gold sector generating near-record free cash flow and maintaining low leverage, investors had anticipated substantial capital returns.

However, company actions have been mixed. AngloGold Ashanti stands out with its commitment to returning 50% of free cash flow to shareholders, while Newmont has maintained consistency in share buybacks.

In contrast, Agnico Eagle (NYSE: AEM )’s buybacks were modest, and Kinross Gold (NYSE: KGC ) postponed its capital return decision, leading to investor uncertainty about broader capital allocation strategies.

Guidance from senior gold producers has also fallen short of market expectations. RBC notes that companies are projecting lower production levels and higher costs for 2025, with capital expenditures set to rise by an average of 9% compared to last year.

Production forecasts for major producers, including Barrick Gold (NYSE: GOLD ) and Newmont, have been revised downward by an average of 3%, while all-in sustaining costs (AISC) are expected to increase by 4%.

This reinforces RBC’s earlier warnings about growing cost pressures and higher discretionary spending on exploration and expansion projects.

Despite these challenges, gold producers have outperformed royalty companies so far this year, a trend attributed to both the rising gold price and the relative valuation gap between the two segments.

Companies with higher leverage to gold prices have led the gains, though those facing operational setbacks have seen sharp declines.

Finally, RBC analysts suggest that mid-cap gold producers could benefit from a sustained gold price rally. Historically, these companies have outperformed their senior counterparts in such environments due to their growth potential and more flexible liquidity profiles.

However, mid-cap valuations have remained dislocated from larger peers since 2019, and investor positioning remains skewed toward industry giants like Barrick and Newmont.

Should sentiment in the sector improve, RBC analysts speculate that investor portfolios could rebalance toward mid-cap firms, offering them a potential path to stronger performance.