Gold Producers Break the Cycle: What’s Changed and Why It Matters

Gold surged to a record high of $3,425 per ounce in late April.

Even after brief a correction, it continues trading comfortably above $3,200. This is a clear sign of the ongoing economic and geopolitical uncertainty.

Given the current conditions, we expect gold to remain strong—especially if the Trump administration maintains its aggressive tariff policies.

Historically, gold has served as a safe-haven asset, attracting investors during periods of high market volatility. That’s precisely why central banks rushed to bolster their reserves following Trump’s election in late 2024.

Now, retail investors are following suit, pouring into the gold space by purchasing physical metal, gold exchange-traded funds (ETFs), and mining stocks.

However, during past gold rallies, mining companies were unable to capitalize on higher prices for long.

This time, though, the setup is different. Let’s explore why.

Inflation, Then and Now

During the COVID-19 crisis, gold prices surged from under $1,500 to over $1,900 per ounce as investors responded to growing uncertainty by diversifying away from risky assets.

The current Trump-induced market disruption shares some similarities—but it’s not identical.

While early gold investors profited, gold producers faced shrinking margins.

Despite a 25% increase in gold prices, mining costs surged alongside inflation. With official inflation hitting 9.1% in June 2022, miners struggled with:

• Rising fuel costs,

• Shipping delays,

• Labor shortages, and others…

The result? All-in sustaining costs (AISC) climbed over 36%, severely limiting profitability.

Many miners underestimated these price hikes, leading to ballooning capital costs. For example:

• IAMGOLD’s Côté gold mine in Ontario saw its cost estimate soar from $825 million to $1.9 billion.

• Argonaut Gold’s Magino mine jumped from C$510 million to C$800 million.

Why This Time Might Be Different

Today, gold has already gained 25% year-to-date, yet inflation remains relatively stable. Whether you look at the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE), or alternative measures like Truflation, annual inflation hovers between 2.0% and 3.0%.

While tariffs could trigger higher inflation, post-pandemic price spikes aren’t expected to return. That’s why gold miners are better positioned to take full advantage of the rally.

Lower input costs, improved supply chain conditions, and tighter capital discipline are setting the stage for their sustainable profitability.

Also, many mining companies have spent the past two years optimizing operations, reducing debt, and streamlining portfolios to focus on their most profitable assets. In other words, they’ve learned from past mistakes—and it shows in their latest earnings.

However, not all gold producers are created equal. Some will thrive—others won’t.

Here’s what investors should consider when looking at opportunities in the gold mining sector.

Key Factors to Evaluate

1. Profitability at Current Gold Prices

Not every gold mine turns a profit. Some producers struggle with high costs exceeding $3,000 per ounce, a major red flag.

Ideally, AISC should stay below $2,000 per ounce. Keep in mind that mining companies operate multiple sites, so it's worth examining each mine’s cost profile.

2. Smart Capital Allocation

A company with AISC under $2,000 should be profitable—but how it reinvests that profit matters. Ideally, funds should go toward:

• Business expansion,

• Share structure improvements,

• Balance sheet strengthening.

Some companies, however, waste capital—whether by funding excessive executive bonuses or making poor investment choices.

If gold trades above $3,000 and a company isn’t profitable, it’s worth inspecting the income statement or reaching out to management.

3. Mine Life & Resource Replacement

A mine should have at least five to seven years of production left. If reserves are depleting, margin compression becomes a problem as miners have to extract lower-grade ore.

Additionally, end-of-life mines require remediation, an expensive process that halts production. To avoid this issue, investors should track a company’s exploration campaigns. If they’re consistently replacing mined-out resources, that’s a positive sign.

4. Expansion Potential

A mine with large resources but limited processing capacity should consider plant upgrades. Though expansions raise costs temporarily, they boost gold output and long-term sales.

If executed properly, expanded operations can boost financial performance. Look for companies with a clear growth roadmap, community engagement strategies, and a strong track record of delivering projects on time and on budget.

Bottom Line

Investors should weigh these key factors when selecting gold producers. And don’t forget other fundamentals, including:

• Management’s track record,

• Balance sheet and share structure,

• Political risk.

These considerations apply to all mining stocks—not just producers.

With market uncertainty likely to keep gold prices elevated, gold mining companies should outperform the metal itself.

Those with low-cost, high-quality assets stand to reap the biggest rewards.

Stay tuned—we’ll highlight top-performing companies in the sector soon.

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