Gold miners in gold trading

Gold miners are listed companies that explore for, develop and produce gold. Their shares, and funds that hold baskets of them, are often used as a leveraged way to express a view on gold. A key industry measure is the all-in sustaining cost (AISC), the full cost of producing an ounce including sustaining capital.

How it applies to gold trading

Because costs are relatively fixed in the short run, a rise in the gold price lifts miners’ margins proportionally more. If a producer’s AISC is $1,500 and gold rises from $3,000 to $3,300, the margin per ounce rises from $1,500 to $1,800, a 20% increase on a 10% move in gold. That operating leverage is why miners often outperform gold in rallies and underperform in declines.

Miners also behave like stocks: they fall in broad equity sell-offs and carry company risks such as cost overruns, political risk and dilution. Divergences between miners and gold, such as gold making new highs while miners lag, are watched as a sentiment signal.

Worked example

Example (hypothetical numbers): gold rises 8% over a month. A miners index rises 15%. The next month gold falls 4% and stocks sell off; the miners index falls 11%. The miners amplified gold in both directions and added equity risk on the way down.

A common mistake

Treating miners as a direct substitute for gold. They carry stock-market and company-specific risk.

See also: Gold ETF, Beta, Correlation, Risk-on and risk-off.

Frequently asked questions