but then whats the downside of going up NG levels? Should the benefits of +20% gold and ore also be removed for increasing in NG?

Don't the enemies get tougher?

No, they dont. It's a clever design to reduce your armor so that enemies deal more. The results are the same, but I do like to see the numbers go up so I do prefer the approach to the enemies getting stronger instead of you becoming weaker.
I took this approach for my hw2 NG+ mod and I must say it's a lot easier to make the player weaker.

Hmm, I'll have to think about this, I thought they'd do more damage in NG+ and the armor reduction is a double penalty

The thing about armor reduction (and the Armor=100 value=67% reduced damage), which is a system league of legends uses (I know it has a specific term, not sure what it's called), is due to multiplicative scaling(?), going into negative values increases the penalty more per point, like increasing the armor past 0 reduces the penalty, but scales less the higher you go. So 100 armor is 67% reduction, but doubling this to 200 armor is only like 75% total reduction.

If you went just by attack rolls, you would have to tune differently, because you run into the same problem, as higher numbers end up having less effect the higher your resistances are, and then you have to start dealing with % penetration rather than just raw numbers.