Could Buying Newmont Stock Today Set You Up for Life?

Newmont (NYSE: NEM) is a hot stock right now, with its shares gaining a massive 180% over the past year. For comparison, the S&P 500 index (SNPINDEX: ^GSPC) is up "just" 20% over that same period. In fact, Newmont's price surge is even trouncing the 35% advance of artificial intelligence (AI) darling Nvidia (NASDAQ: NVDA). Before you buy Newmont, thinking you're setting yourself up for life, you need to understand why the stock is rallying.

What does Newmont do?

At its core, Newmont is a miner. Mining is a capital-intensive business. It costs huge sums of money to explore for important minerals, obtain regulatory approval for building a mine, construct and operate that mine, and then return the land to its natural state when the mine is depleted. That money is just one part of the equation, too, since building a mine also requires a lengthy time commitment.

Image source: Getty Images.

The products that miners produce are generally commodities. In the case of Newmont, it mines for and sells gold and copper. Copper is more of an industrial material, while gold is a precious metal that is used as a store of wealth, for jewelry, and in various industrial applications. Copper and gold are both highly volatile commodities.

Currently, gold is making headlines as geopolitical and economic uncertainties have driven its price to all-time highs. As one of the world's largest gold miners, Newmont's stock is rising along with the price of gold. That makes sense.

The mining model is a leveraged investment in gold

As noted, mining is an expensive business. Much of the cost of running a mine is unavoidable, so there is a base expense level to the business. Metals miners generally report the all-in sustaining cost (AISC) for their mining operations. That is the amount of money it costs to produce the metal they sell while also maintaining production levels. As long as gold is above Newmont's AISC per gold ounce, it makes money. If gold falls below that price, it loses money.

The AISC price tends to be fairly stable, so rising gold prices can lead to big earnings increases. To provide a simplified example of the math, an AISC of $1,000 with gold at $1,500 an ounce would lead to a $500 profit per ounce. If gold were to increase in price to $2,000, a 33% jump, the hypothetical miner's profit would increase to $1,000, a 100% increase. There is material leverage in the mining business model. However, it cuts both ways, since a drop from $2,000 an ounce to $1,500 would cut profits in half despite only representing a 25% decline in the value of gold.

With gold prices rising, Newmont's income statement is looking very strong right now. Earnings more than doubled year over year in the third quarter of 2025. That's obviously a good thing, and investors are reacting to it. However, the current good news can only be sustained if gold prices remain high. If history is any guide, gold prices will eventually drop, leading to weakening earnings for Newmont and a falling share price.

NEM data by YCharts.

Set yourself up for diversification

What you are really buying when you add Newmont to your portfolio is a diversification tool. Gold and gold miners often end up being used as safe haven assets, since they are, or produce, assets viewed as a store of wealth. While buying after a huge run-up is probably ill-advised, investing in Newmont will provide added diversification.

However, it is unlikely to set you up for life financially, given the inherent volatility of the business. In fact, as the chart above illustrates, Newmont stock is prone to significant rallies and drawdowns. At this point, unless you expect gold to keep rising, you should probably keep Newmont on your wish list. The next pullback would be a better opportunity to add this diversification tool to your investment toolbox.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.