Newmont posted record third-quarter adjusted net income, yet its shares fell on Friday while gold slipped below $4,000. The analysis argues that costs rising faster than gold's price explain why miners fall harder than the metal.
Newmont, the world's largest gold miner, reported record third-quarter adjusted net income on Thursday. On Friday, its shares fell 4.6%, more than twice as much as the GDX. Over the week, the GDXJ, the ETF for junior mining stocks, fell 9.6% while gold fell 4.1%.
Fourth-quarter costs outweigh a record quarter
Gold itself slipped below $4,000 on Friday. The analysis says a share price looks ahead while a record quarter looks back, so investors focus on future profits.
In the third quarter, Newmont sold gold at an average of $4,317 per ounce, with all-in sustaining costs of $1,454 per ounce. For the fourth quarter, the company expects those costs of about $1,900 per ounce, mainly because of higher sustaining capital spending. It also cited continued inflation, including higher oil prices.
Operating leverage magnifies the drop
Most costs do not fall when gold falls, so each percent lost in the gold price takes a bigger percentage out of the margin. At $3,500 gold and costs of $1,900, the analysis calculates a margin of $1,600 per ounce, 44% less than in the third quarter, while gold would be 19% lower.
The effect grows with costs. The analysis views this as part of why junior miners, many of them higher-cost producers, fell harder than gold. On Friday, the GDXJ fell another 1.83% to $99.35 on more than twice Wednesday's volume.
Oil, rates and the dollar add pressure
Higher oil reaches miners twice. Brent rose to a six-month high of $116.72 on Friday, which raises costs and keeps inflation expectations up. Early on Friday, the CME FedWatch tool showed about an 84% chance of another Fed hike by the end of the year. A rate hike raises the cost of holding gold, which pays no interest.
The analysis also expects the next big move in the USD Index to be likely to the upside, which would add to the pressure on gold.
Silver closed below its 2026 lows for a second day, at $53.95 on Friday, after $55.01 on Thursday.
The analysis concludes that until miners start rising on gold's down days, the sector's decline may have further to go.
Source: Investing.com
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