After soaring in a powerful upleg, the gold miners’ stocks have been grinding lower for a couple months now. This ongoing correction is increasingly draining enthusiasm for this small contrarian sector, working to rebalance sentiment. Gold-stock price levels relative to gold suggest this necessary and healthy selloff hasn’t fully run its course yet. But once this passes, current valuations remain very bullish for the gold miners.
Unlike the vast majority of other industries, gold miners’ earnings are almost totally dependent on a single variable. That’s the price of gold. The profitability of excavating and selling gold directly levers prevailing gold prices. The costs of producing this metal are largely fixed, mostly determined during mine-planning stages when engineers decide which gold-bearing ores to mine, how to dig to them, and how to process them.