Shares in gold miners often outperform a rising gold price. The reverse is also true, as investors have just found out.
Gold has gone into reverse after a strong rally, and gold mining shares have fallen by an even greater amount.
Since the current bull run in gold started in December 2015, the S&P Commodity Producers Gold index, a basket of largest gold mining-related stocks and the benchmark tracked by the popular iShares Gold Producers exchange-traded fund, is up 719% compared with an advance of 353% for gold itself.
However, if you look closely, even at what is a long-term chart, you can see the drop in the gold mining index is substantially larger than that for gold over the last few days.
Why did gold go up (and down)?
Gold prices had been rising steadily for several years, supported by central banks buying the precious metal to diversify their capital reserves out of dollars and helped more recently by weakness in the dollar and concern over other assets which are perceived as safe havens.
The appointment of Kevin Warsh as Federal Reserve chair, a more orthodox and hawkish (less likely to favour lower interest rates) pick than had been anticipated seemed to be the trigger for the sharp subsequent sell-off as the dollar gained ground and fears about Fed independence eased.
Why do miners outperform and underperform gold?
This pattern is logical. Investing in gold miners allows investors to benefit from their exposure to the precious metal and from any output growth from their mines.
Another advantage of many gold-mining stocks relative to gold itself is the capacity to pay dividends out of cash flow generated from their operations. This addresses one of the key drawbacks of gold as an asset class, in that it does not offer any form of income.
On the flipside, gold miners are exposed to the risk of operational failures or setbacks, and they are often more volatile than the gold market. Not just in this latest sell-off but also in previous corrections, gold miners have typically fallen more heavily than gold itself.
For example, between March and November 2022, when gold fell around 20%, the S&P Commodity Producers Gold index fell nearly 40%. Equally, between October 2024 and the end of that year, when gold slipped around 6%, the basket of gold miners was down nearly 18%.
This trend is evident over longer time periods too. During the last extended sell-off for gold prices, seen between October 2012 and December 2015, gold miners fell appreciably more.
While it would be interesting to examine the relationship during earlier gold corrections, the S&P Commodity Producers Gold index only launched in 2011.
What happens to miners’ costs when gold goes up and down?
Gold miners do not always follow the same pattern of outperforming a rising metal price and underperforming a falling one.
In 2024, the price of gold jumped by 22% from $1,989 per ounce to $2,412 per ounce between mid-February and mid-April. It held above $2,300 per ounce until that autumn but miners lagged this move higher.
One possible explanation for the disparity can be found in gold miners’ cost base. The main measure of costs for gold miners is the AISC or ‘all-in sustaining costs’ which encompasses everything required to keep a gold mine running, from direct operating and administrative expenses to the spending required to further the development of a site.
These tend to go up along with gold prices for several reasons:
- Higher prices encourage miners to target lower grade ores – or, in plain English, to mine rock which has less gold in it. That means more waste material and less recoverable gold, thus making this more expensive than mining higher grade material.
- Many countries with gold mines will charge royalties which are linked to the gold price. The higher the gold price, the more cash miners must hand to the respective government.
- Gold prices often move higher during inflationary periods when the cost of labour, energy and equipment is on the rise.
Costs don’t always rise as quickly as the gold price itself so miners can benefit from rising margins. This has been particularly evident of late thanks to the speed and extent of gold’s recent rise. The World Gold Council’s latest data on the industry average all-in sustaining cost to the end of September 2025 put it only a touch above $1,600 per ounce.
However, it is also true that when gold falls, costs take longer to come down. This can put the profitability of gold miners under pressure. For example, if a gold miners’ all-in sustaining cost was $1,800 per ounce and the gold price fell from $2,500 to $2,300, then its profit per ounce would fall nearly 30% even though gold was only down 8%.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...
