Rising costs of labor and materials amid a high-inflation environment have certainly put added pressure on gold miners to turn a profit. However, rising gold prices are helping to add any future upside in precious gold mining if they stay elevated.
In turn, this could continue to benefit ETFs that focus on extracting opportunities in the gold mining industry. In particular, this means funds like the Sprott Gold Miners ETF (SGDM ) and the Sprott Junior Gold Miners ETF (SGDJ ) could benefit moving forward.
With rising gold prices, it will help the bottom line of gold miners ranging from large-cap to small-cap. The global cost average for gold miners is also starting to show signs of easing. That should help benefit operations even further.
“In Q4’23 gold miners’ global average all-in sustaining costs (AISC) rose again, up 2% q/q to US$1,342/oz as persistent cost inflation and a tight labour market continued to influence on-site operating costs,” Sarah Tomlinson, director of mine supply, wrote in Metal Focus. “There is a silver lining however, because the rate of increase is slowing and the higher gold price has eased pressure on producer margins.”
“Using the quarterly average spot price of US$1,977/oz, the global average margin in Q4’23 was a relatively healthy US$635/oz, creeping back towards the levels of H1’22, but still some way off the record margins of 2020,” she added.
If revenue projections look favorable to gold mining companies due to rising gold prices and lower costs, SGDM and SGDJ could stand to benefit. The former maintains a focus on large-cap companies, while the latter maintains focus on small-cap companies.
Producer AISC Margins Remain Fairly Robust on the Back of Stronger Gold Prices
Quarterly global average AISC, AISC margins and gold price US$/oz*
*Data as of 31 December 2023.
Source: Metals Focus Gold Mines Cost Service
Gold Helped by China Stimulus, Rate Cut Bets
As mentioned, miners will benefit from any further tailwinds that can push gold to higher heights. In particular, China’s recovering economy amid more stimulus measures implemented by its government and the prospect of rate cuts in the United States will help to fuel prices.
“Gold is moving higher despite (an uptick in) the dollar and yields. I think in this instance, China stimulus has helped as we’re also seeing other (base) metals do very well,” said Bart Melek, head of commodity strategies at TD Securities.
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