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The Gold spot price experienced remarkable growth in recent years, with a +15% gain in 2023 followed by a stellar +31% surge in 2024. Despite these impressive figures, the larger Gold mining companies—the entities extracting and selling the metal—largely failed to keep pace in 2024, with many significantly underperforming the Gold spot price
This disparity raises questions about the underlying challenges faced by the gold mining sector and why Gold mining stocks have underperformed the Gold spot price. To ensure no local biases, the analysis features companies listed in the US, Australia and South Africa
A review of the performance of the larger publically -listed Gold mining share prices and the Gold spot price
Gold mining stocks usually amplify the trend of the prevailing Gold price, outperforming in bull markets and performing wrose in downtrends. Given this, 2024 should have been a very good year for the miners but this was far from the truth.
The first obvious observation from the graph below is that miners had outperformed the Gold price for several years going into 2024 which may have limited upside expectations going into the year, but there is much more to this story than share price expectations as we will discuss in the next sections
While some miners outperformed gold in 2023, the general trend in 2024 was one of underperformance, with several companies recording double-digit declines. Notably, Northern Star (-26%) and Evolution (-20%) faced the steepest losses. Here are some theories as to why Gold miners underperformed Gold in 2024
Gold mining has a unique supply dynamic where higher prices often lead to lower production in the short term. Companies shift focus to extracting lower-grade ore that would have been uneconomical at lower prices. This practice may reduce output in terms of ounces, limiting revenue growth despite a higher gold price
Many gold miners engage in hedging by selling future production via forward contracts at predetermined prices. While this strategy mitigates downside risk, it also caps potential gains. If the spot price rises significantly—as it did in 2024—miners with extensive hedging do not benefit from the higher prices, contributing to underperformance.
2024 was a year in which the general market sentiment was one of optimism with risk-on assets such as Bitcoin and US technology stocks performing well. If specualtors are bullish risk assets they would likely be underweight Gold miners in their stock portfolios. Lack of excitement in the share price movements would have exacerbated this
Recent years have reminded the typical investor of the risks with investing in certain jurisdictions. Anyone that held Polymetal shares which was a FTSE 100 precious metal miner listed on the London Stock Exchange had their shares rendered worthless by sanctions on Russia following the invasion of Ukraine. Barrick Gold recently had a Gold mine in Mali seizes by the local government too, highlighting additional risks to the mining sector
Gold mining stocks have slightly different drivers to the Gold spot price. The Gold price reflects supply and demand now, whereas miners are more foreward looking and will rise or fall based on where traders see the Gold price in the future. The 2024 Gold rally was an awkward one with sentiment being poor as many analysts were predicting downside corrections throughout the year
The trend in Gold ounces mined shows several trends with an obvious stalling of output growth
While global gold output has grown from 2,620.44 tonnes in 2000 to a projected 3,580.1 tonnes in 2024, the pace of growth has slowed in recent years. Seasonal patterns show higher production in the second half of each year, but the industry faces structural challenges such as resource depletion, stricter environmental regulations and increased geopolitical risks. These factors limit the capacity of miners to capitalise fully on bullish gold markets.
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Gold miners publish their All-in Sustaning Costs, which is how much it costs them to pull an ounce of ground from the ground. The spread between AISC and the Gold price is very important for mining companies
The All-in Sustaining Cost (AISC) of gold mining companies demonstrates notable fluctuations over the years, reflecting broader trends in the gold mining industry. Starting in Q1 2012 at $929.76 per ounce, AISC steadily increased, reaching a peak of $1151 by Q2 2013. This rise can be attributed to a combination of rising operational costs and market dynamics during that period. Following this peak, there was a gradual decline through 2014 and 2015, with AISC bottoming out at $829.44 in Q1 2016. This decrease indicates improvements in cost efficiency or shifts in production methods during those years.
From 2016 onward, AISC began a steady upward trajectory, climbing to over $1300 per ounce by 2023 and culminating at $1401.87 in Q2 2024. This sustained increase reflects growing cost pressures, including labor, energy, and material expenses, as well as potentially more challenging extraction conditions. Notably, the recent data suggests a sharp rise in AISC from 2021 to 2024, with costs increasing by nearly $200 per ounce within three years. This indicates a potential structural shift in the industry’s cost dynamics, emphasising the importance of monitoring operational efficiencies and market strategies to adapt to evolving conditions.
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