Stocks Analysis by Adam Hamilton covering: Gold Spot US Dollar, S&P 500, Gold Futures, SPDR® Gold Shares. Read Adam Hamilton's latest article on Investing.com
miners are on the verge of reporting another best quarter ever. Q3’s earnings season ramping up soon will prove epic, fueled by dazzling record gold prices and slightly-lower mining costs. That ought to double sector unit profits, extending gold stocks’ long trend of massive earnings growth. Such fantastic results should increasingly catch fund investors’ attention, with their inflows driving this sector way higher.
Across individual gold miners, there are always plenty of distorted bottom-line earnings. These include big noncash gains and losses arising from unusual items ranging from acquisitions to impairment charges. But that noise can be distilled out with an excellent proxy for sector unit profits. It simply averages the GDX top 25’s all-in sustaining costs in any quarter, then subtracts them from its average gold price., leaving gold stocks deeply undervalued relative to their metal.
But today realize Q3’s record gold levels have been set in stone, they can’t be revised lower like Biden Administration jobs reports. So the only variable driving sector unit profitability is the GDX top 25’s average all-in sustaining costs. Over the past four quarters they have been, clocking in at $1,304, $1,317, $1,277, and $1,239 per ounce. That averages $1,284, a conservative baseline.
We won’t know what the actual average is until Q3 earnings season ends in mid-November, after which I’ll write another essay fully analyzing those collective results.
Of course they will to some extent, as they are leveraged plays on the metal they mine. At worst since its latest interim high, gold has pulled back 2.4% as of midweek. GDX did fall 6.8% in that span, making for 2.9x downside leverage on the higher side of that usual 2x-to-3x range. But that ought to moderate since gold stocks remain really undervalued after seriously lagging gold’s powerful advance, as precedent shows.
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