Despite record gold prices, miners struggle with profits. Analysts see a potential sector turnaround
Despite record-breaking daily increases in the price of gold, gold miners have yet to see significant profit increases, according to a report by the Financial Post.
Analysts and portfolio managers note that while the sector has historically underperformed relative to the price of bullion, there are signs of a turnaround.
The VanEck Gold Miners ETF, comprising some of the world's largest gold miners, has seen a 10.5 percent increase over the past month, aligning closely with the rise in gold prices to US$2,388 per ounce.
However, caution remains among analysts even when recommending stocks like Newmont Corp., the sector’s largest company.
Despite Newmont's guidance suggesting rising production and falling costs, similar past predictions have not materialized as expected, with Citigroup analysts pointing to rising operational costs and declining production as ongoing challenges.
In contrast, Toronto-based Barrick Gold Corp. reported mixed preliminary financial results for the first quarter, with production slightly missing expectations and costs rising.
Citigroup analysts noted that “mining inflation is still following through,” indicating ongoing cost pressures despite stable production levels.
The traditional correlation between gold prices and investments in gold-backed exchange-traded funds (ETFs) has also shifted. According to the World Gold Council, gold-backed ETFs have experienced net outflows for ten consecutive months, losing US$823m in March alone.
Analysts now attribute the rise in gold prices to increased purchases by central banks, particularly in China.
Amidst this backdrop, some companies like Agnico Eagle Mines Ltd. stand out, with its share price increasing by 14.3 percent over the past year. Agnico Eagle has seen its net income rise consistently since 2019, reaching US$1.94bn in 2023.
John Hathaway, a senior portfolio manager at Sprott Asset Management USA Inc., highlights the unique trends affecting the gold market. He notes that while European and North American ETFs have seen the largest outflows, Asian markets are attracting significant inflows.
Additionally, retail interest in gold has surged, exemplified by Costco Wholesale Corp.'s successful venture into selling gold bars online, which has grown substantially in sales.
Despite historical challenges and investor shifts towards cryptocurrencies, gold remains a significant part of Canada's economy, with numerous mining and exploration companies listed on Canadian exchanges.
Hathaway remains optimistic, suggesting that even a small increase in investment in gold mining equities could lead to substantial impacts on the market.
