Inflation and cost pressures "ate up" the gains that originally belonged to gold mining stocks
With the continuous rise in spot gold prices (yellow line), the world's largest gold mining company (blue line) has not kept pace with the upward trend.
Affected by the Middle East and Russia-Ukraine situation, the price of gold has risen by 13% since the beginning of this year. This Friday, as the US dollar's rally subsided, both spot and futures gold prices once again hit historical highs during trading hours. COMEX June gold futures closed up 1.6% at $2345.4 per ounce, with a weekly gain of 4.78% this week, marking the largest weekly increase since the week of March 8, 2023, when it rose for two consecutive weeks.
However, at the same time, the stock prices of the world's largest gold mining company have shown weak growth. As of Thursday's close, Newmont's stock price has fallen by about 6% year-to-date, while its main competitor Barrick Gold's stock price has dropped by approximately 2%. Even with the rebound on Friday, there is still a significant gap between the performance of gold mining stocks and gold itself.
The divergence between gold mining stock prices and gold prices breaks the traditional rule that mining stocks should outperform gold itself. Analysis suggests that this deviation may be related to the rising costs for mining companies due to continuous inflation.
Since the beginning of 2020, with panic sweeping the market, gold prices have soared, and correspondingly, mining company stocks have also surged. Large gold mining companies have taken advantage of this to launch mergers and acquisitions, expanding their scale and surpassing their competitors.
However, with the rise in inflation, these mining companies have seen their profits shrink due to the rising costs caused by inflationary pressures, with most companies exceeding expectations in expenses related to labor, equipment, and processing. Costs such as cement, lime, explosives, and steel have all faced upward pressure.
In North America, with wages and other costs rising sharply, companies like Newmont and Barrick Gold are facing significant challenges. According to media reports, Newmont, based in Denver, had total operating expenses in 2023 that were 43% higher than analysts' expectations.
Due to lower-than-expected gold production, Newmont's $15 billion acquisition of Newcrest Mining has also faced shareholder scrutiny.
Market analysis believes that the future performance of gold mining stocks depends on the outlook for inflation and cost control. If inflation pressures ease and companies improve their costs, gold mining stocks are expected to see a rebound