Image source: Getty Images.

What: Shares of DRDGOLD (DRD 0.83%), a South African gold miner, tumbled as much as 16% during Tuesday's trading session, following a downgrade from JPMorgan Chase.

So what: The downgrade from JPMorgan may not come as a huge shock, considering that DRDGOLD shares had rallied by more than 70% since the Brexit vote was announced a little more than two weeks ago. JPMorgan wound up downgrading DRDGOLD to an "underweight" rating, with the analyst covering the stock noting that DRDGOLD's "valuation metrics appear stretched." Despite the downgrade, JPMorgan upped its price target on the company to $6.52 from $4.90, although this still implies 26% downside from Monday's closing price of $8.82.

Now what: Gold miners have a ridiculously good year, and DRDGOLD is no exception, with its shares up 365% year to date. DRDGOLD is benefiting most from the fundamental and psychological changes backing physical gold's ascent, and I don't foresee those benefits changing anytime soon.

Physical gold's biggest boost is coming from the low-yield environment in developed countries around the world. If investors were able to lock in a guaranteed return with a bond that was above the rate of inflation, gold prices would probably be stymied. However, with gold viewed as a better store of value with yields near all-time record lows, the opportunity cost of buying gold continues to fall.

In addition to the lowered opportunity cost to own gold, uncertainty surrounding the Brexit and the U.S elections, as well as growing demand for physical gold from investors and central banks, is helping to push spot gold higher.

Image source: DRDGOLD.

But higher gold prices alone may not be enough to send DRDGOLD higher. We also need to see improvements in production and costs. To this end, things look promising. DRDGOLD noted in mid-April that gold production had expanded by 4%, all while its operating costs remained stable. Furthermore, a much-anticipated licensing approval from the Department of Water and Sanitation cleared the way for a 300% deposition capacity increase for Ergo Mining, a reprocessor of mine waste that's majority owned by DRDGOLD.

Investors will want to keep in mind that labor costs in Africa tend to be higher than labor costs in other parts of the world when evaluating DRDGOLD, but as a whole I wouldn't put too much weight in JPMorgan's decision to downgrade DRDGOLD today. Over the long term, the company appears on track to add to its gains as long as its costs remain under control.