It’s been a great time to be a gold investor.
When measured in US dollars, the yellow metal is considerably below its March 2022 peak.
However, when measured in sterling, gold is less than a hundred pounds below its all-time high.
Support seems to be forming between £1,468 and 1,494 per ounce at the time of writing.
Although gold is down over 6% from its top of £1,580 per ounce in March 2022, it is up 12.60 percent since the start of the year. There aren’t many other investment assets that can make that claim.
Gold is in a magnificent position. Although the mainstream media has forgotten about it, money continues to flow into the metal, keeping the price high.
In fact, gold-backed exchange-traded funds (ETFs) have had positive net inflows for the past four months. This suggests that more investors have purchased gold-backed ETFs than have sold them. Despite the recent sell-off, it appears that investors are still interested in gold as a long-term investment.
Meanwhile, when looking at what has occurred to gold mining company stock prices, the story has been quite different.
That’s vital to remember since gold miners’ stock values tend to follow the gold price.
UCITS ETF VanEck Gold Miners (LSE:GDX)
GDX aspires to be a carbon copy of the NYSE Arca Gold Miners Index (NYSEArca:GDX), which is designed to measure the performance of publicly traded gold producers around the world.
To be more specific, you can usually expect some sort of relationship between the two. Both XAUGBP and GDX — the price of gold in sterling terms – tend to move in the same direction, but not always in lockstep.
That link was broken in March of this year. As a result, there is a significant gap between the gold price and the big gold producers.
The GDX index is heavily weighted in gold mining stocks from Canada (41.02 percent), Australia (13.60 percent), and the United States (13.60 percent) (19.86 percent ).
Gold mining businesses in Brazil, South Africa, and China account for the remaining 25.52 percent.
You’ll observe, though, that GDX is significantly more volatile than the price of real pound sterling gold.
This is due to the fact that GDX is based on gold miners all over the world. GDX is essentially a combination of international stock values and other currency fluctuations.
What the GDX does tell you is how the market values significant gold producers across the world.
To be more specific, you can usually expect some sort of relationship between the two. Both XAUGBP and GDX — the price of gold in sterling terms – tend to move in the same direction, but not always in lockstep.
That link was broken in March of this year. As a result, there is a significant gap between the gold price and the big gold producers.
Everything gets pretty simple at this point in the narratives.
And, believe it or not, it has nothing to do with the price of gold.
The price of oil is rising. Gold prospectors lose their jobs.
Oil-related costs account for around 10% of their total expenses, according to a good rule of thumb. For subterranean miners, a number is slightly higher.
Many of the commodities used on a mining site, such as chemicals and tyres, require oil as a component.
However, that isn’t the only factor weighing on gold miners’ profits and stock prices. Gold mining consumes a tremendous amount of energy. They are also dealing with a double whammy of rising non-oil energy expenses.
When you consider the massive electrical component of mining (for extraction, crushing, sorting, and onsite refinement – not to mention all the various types of machinery such as tractors, vehicles, cars, industrial tools, and water pumps), their energy costs have increased. Gold producers’ profit margins will have been squeezed if the price of gold does not rise.
Gold miners may continue to underperform the yellow metal since oil and energy costs are expected to remain high for some time.
