The Cost of Leverage: Gold Miners' Margins Matter
June 11, 2025
Read Time 6 MIN
Monthly gold market and economic insights from Imaru Casanova, Portfolio Manager, featuring her unique views on mining and gold’s portfolio benefits.
The Cost of Leverage: Gold Miners' Margins Matter
Market Snapshot: Gold’s Resilience Defies Risk-On Rally
In May 2025, gold demonstrated notable resilience, holding firm around the $3,200 per ounce range despite a broad rebound in global equity markets and the resurgence of the “risk-on” trade. Market optimism was primarily driven by a temporary easing of trade tensions and signals that trade negotiations could be moving in the right direction. The S&P 5001 and NASDAQ2 jumped 6% and 10% respectively in May, while the Nikkei,3 FTSE 1004 and Hang Seng5 all posted gains above 4%. Yet gold managed to close the month unchanged from the end of April.
Gold’s ability to maintain its value in the face of rising stock indexes and improving investor sentiment reflects lingering concerns over macroeconomic instability, including unresolved trade tensions, high sovereign debt levels and geopolitical flashpoints. Gold’s resilience was particularly impressive considering investment demand, as tracked by the holdings of global gold bullion ETFs, declined in May, down 0.77%. This reaffirms our view that other centers of demand, most notably global central banks, continue to provide support for the gold price in the current environment.
Unlike investor interest, which seems to surge and fade depending on evolving financial market conditions and global macro-economic developments, the official sector’s gold buying appears anchored to a long-term commitment to diversify its reserves and is supported by gold’s role as an inflation hedge and strong performance in times of crisis. Gold closed as high as $3,431 on May 6, and as low as $3,177 on May 14, ending the month at $3,289.35 per ounce—effectively unchanged from April’s close of $3,288.71.
Earnings Season Highlights Operational Discipline in Gold Miners
The gold miners, as represented by the NYSE Arca Gold Miners Index (GDMNTR).6 delivered a respectable performance in May, rising 3.02%. This gain came despite gold’s flat performance and a strong rebound in broader equity markets. May marked the peak of the Q1 reporting season for gold miners, with operating and financial results that generally exceeded expectations across the sector—likely contributing to the equity’s relatively strong performance.
The market is very focused on gold miners’ ability to meet their targets, particularly around production costs. Positively, among the group of companies we track, more than 75% reported all-in sustaining costs of production that were in line with, or better than, expected. Consistently meeting or beating production and costs targets should continue to improve investor sentiment toward gold mining stocks and support a re-rating of the sector, lifting valuation metrics to levels more in line with historical multiples.
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Margin Pressures: Unpacking the Drivers of Rising Mining Costs
The market’s obsession with costs is justifiable. Investors own gold stocks to benefit from their leverage to the gold price in a rising gold price environment, but, if at the same time, costs were also to increase, margin expansion would be compromised. During a recent podcast, Animal Spirits Talk Your Book, we were asked an important question: why do production costs tend to increase when the gold price is increasing? Let’s examine some of the main reasons.
- Royalties – Gold mines across the world are subject to royalties. Most governments collect a portion of the profits of a gold mine that operates in their country in the form of royalties. In some cases, these royalties operate on a sliding scale, so that the higher the gold price, the higher the royalty rate. In addition, royalties can be the result of financing arrangements or a legacy from previous ownership structures. In any case, as the gold price increases, companies face larger royalty expenses, which are included in the cost of production.
- Profit sharing – Gold mining operations around the world have also established profit sharing agreements with their employees. The higher the gold price, the more profits generated, and the larger the profit-sharing costs to the company.
- Inflation – Higher gold prices can coincide with higher levels of inflation. This inflation can be widespread, affecting all sectors of the economy, and likely contributing to demand for gold. Or it can be sector specific inflation, caused by a higher commodity price environment which leads to increased demand and competition among miners for labor, equipment, consumables, energy and services as industry activity picks up. In either case, inflationary pressures contribute to higher costs of production.
- Foreign currency appreciation – A higher gold price can contribute to the appreciation of the currencies of countries that produce it, especially if gold production is a significant part of their economy. Stronger local currencies result in higher U.S. dollar costs for gold miners, as a large portion of production costs is denominated in the local currency.
- Lower grade – As the gold price increases, companies may decide to mine and process lower grade (i.e., lower concentration of gold per tonne of rock) portions of the gold deposit. Production of lower grade material may become economic at higher gold prices, and companies may choose to extract this material and maximize production and revenues over the life of the mine. Although more gold will be mined, it is more costly to produce gold from lower grade material, so unit costs of production will also go up in that scenario.
- Higher sustaining and exploration expenditures – Higher free cash flow because of higher gold prices allows companies to spend more in maintaining and expanding their operations. Exploration activities may pick up, and sustaining capital expenditures may be accelerated or forced to play catch up after previous years’ deferrals.
Outlook: Rising Gold Prices, Stable Costs, Stronger Valuations
Gold companies are currently producing gold at an average all-in sustaining cost (AISC) of approximately $1,600 per ounce, translating into an average margin of more than $1,600 per ounce at today’s gold spot prices, a record for this industry.
Take Alamos Gold (6.1% of Strategy net assets), a top holding in our active gold strategy. While gold prices have more than doubled since 2014, the company’s AISC have remained relatively stable—supporting record margins today.
Gold Price vs. Alamos Gold AISC: A Decade of Expanding Margins
Source: Bloomberg, Datastream, ICE Benchmark Administration, World Gold Council, and Alamos Gold (2025E value is based on guidance for 2025, which is between $1,250 and $1,300/oz). Average Gold Price is represented by LBMA Gold Price PM and priced per troy ounce. Total consolidated all-in sustaining costs include corporate and administrative and share based compensation expenses.
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While costs will likely continue to increase going forward, we don’t expect costs to explode to the point where margin erosion is of significant concern. Although companies cannot control cost increases coming from factors such as those listed in the first four points above, they can continue to look for ways to optimize their operations and increase productivity to offset some of those cost pressures and help contain costs. Our positive outlook for gold is accompanied by our projection that gold miners’ margins will continue to expand in a rising gold price environment, supporting higher valuations for the gold equity space.
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Important Disclosures
All company, sector, and sub-industry weightings as of May 31, 2025, unless otherwise noted.
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1S&P 500 Index is widely regarded as the best single gauge of large-cap U.S. equities. The index is a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors including information technology, telecommunications services, utilities, energy, materials, industrials, real estate, financials, health care, consumer discretionary, and consumer staples. 2NASDAQ Composite Index is a broad-based market index that includes more than 3700 stocks listed on the Nasdaq stock exchange. 3Nikkei The Nikkei 225 measures the performance of 225 highly capitalized and liquid publicly owned companies in Japan from a wide array of industry sectors. 4FTSE 100 The United Kingdom's best-known stock market index of the 100 most highly capitalized blue chips listed on the London Stock Exchange. 5Hang Seng Index (HSI) is a market-capitalization-weighted stock market index in Hong Kong adjusted for free float. It tracks and records daily changes in the largest stock listings on the Hong Kong Stock Exchange and serves as the primary indicator of overall market performance in Hong Kong. 6NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2025 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
© 2025 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates.
All references to LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. Other content is the intellectual property of the respective third party and all rights are reserved to them.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.
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Important Disclosures
All company, sector, and sub-industry weightings as of May 31, 2025, unless otherwise noted.
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1S&P 500 Index is widely regarded as the best single gauge of large-cap U.S. equities. The index is a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors including information technology, telecommunications services, utilities, energy, materials, industrials, real estate, financials, health care, consumer discretionary, and consumer staples. 2NASDAQ Composite Index is a broad-based market index that includes more than 3700 stocks listed on the Nasdaq stock exchange. 3Nikkei The Nikkei 225 measures the performance of 225 highly capitalized and liquid publicly owned companies in Japan from a wide array of industry sectors. 4FTSE 100 The United Kingdom's best-known stock market index of the 100 most highly capitalized blue chips listed on the London Stock Exchange. 5Hang Seng Index (HSI) is a market-capitalization-weighted stock market index in Hong Kong adjusted for free float. It tracks and records daily changes in the largest stock listings on the Hong Kong Stock Exchange and serves as the primary indicator of overall market performance in Hong Kong. 6NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2025 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
© 2025 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates.
All references to LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. Other content is the intellectual property of the respective third party and all rights are reserved to them.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.