Gold stocks are ultimately leveraged plays on gold, slaved to its fortunes.\u00a0 Speculators and investors alike only get interested in deploying capital in this high-potential sector when gold is rallying on balance.\u00a0 Although this immutable link is mostly psychological, it has strong fundamental underpinnings. \u00a0Generally the higher the gold prices, the fatter the profits gold miners earn.\u00a0 This dynamic is largely driven by mining costs.<\/p>\n
While gold prices are volatile, unit mining costs are relatively stable.\u00a0 They usually don\u2019t change much from quarter to quarter.\u00a0 Gold mines\u2019 operating costs are largely fixed during pre-construction planning stages when engineers design throughputs for plants processing gold-bearing ores.\u00a0 Their nameplate capacities rarely change, requiring similar levels of infrastructure, equipment, and employees to keep operating.<\/p>\n
While mine expansions boosting output can really affect production costs, they\u2019re fairly rare for individual gold mines.\u00a0 After long decades painstakingly analyzing this contrarian sector, I\u2019d guess gold mines may average one expansion over their decade or so average lifespans.\u00a0 So for the most part excluding some smaller variable expenses, producing gold regardless of where it happens to be trading.<\/p>\n
We\u2019ve amassed lots of hard data over the years proving this.\u00a0 For the past 29 quarters in a row, I\u2019ve dug into the latest results from each of the top 25 GDX (NYSE:GDX<\/span>) gold miners.\u00a0 These include the world\u2019s largest, which utterly dominates this flagship sector ETF.\u00a0 After every earnings season, I feed the key quarterly results reported by all these elite miners into a giant spreadsheet.\u00a0 That important data illuminates fundamental trends.<\/p>\n The gold miners will publish their latest quarterly reports between late October to mid-November, detailing how they fared in Q3\u201923.\u00a0 I can\u2019t wait to explore that new data and will write another essay analyzing it soon after this earnings season ends.\u00a0 But many years of hard-won experience from digesting quarterlies and collating results has given me great insights into before they are reported.<\/p>\n Quarterly average gold prices less the GDX top 25\u2019s average all-in-sustaining costs are a fantastic proxy for sector unit profits.\u00a0 The former is no mystery, set in stone on each quarter\u2019s final close.\u00a0 In Q3\u201923, gold averaged $1,926 on close.\u00a0 That from Q3\u201922\u2019s depressed average of $1,727.\u00a0 Remember what was happening in markets during that brutal comparable quarter about a year ago?<\/p>\n With inflation raging out of control, panicking Fed officials were frantically hiking rates by epic amounts.\u00a0 That included four monster 75-basis-point federal-funds-rate hikes in a row in the middle of 2022!\u00a0 That extreme Fed hawkishness along with higher yields launched the benchmark US Dollar Index<\/span> parabolic.\u00a0 It into late September 2022, hitting an extreme 20.4-year secular high!<\/p>\n Gold price action is dominated by gold-futures speculators, who punch way above their weights in bullying around gold due to the extreme leverage inherent in its futures.\u00a0 These guys can\u2019t afford to be wrong for long, or they face ruin.\u00a0 They closely watch the US dollar\u2019s fortunes for their primary gold-futures-trading cues, doing the opposite.\u00a0 So gold prices collapsed a miserable 20.9% in 6.6 months into September 2022!<\/p>\n That huge gold selloff that narrowly and briefly edged into new-bear territory .\u00a0 Though an unsustainable anomaly that soon had to mean revert sharply higher as I wrote at the time, that makes for impressive Q3\u201923 comps.\u00a0 Gold\u2019s subsequent rebound upleg blasted 26.3% higher into early May 2023!\u00a0 Gold has mostly consolidated higher since, greatly boosting last quarter\u2019s average price.<\/p>\n The yellow metal hasn\u2019t seen bigger year-over-year quarterly-average-price gains since Q1\u201921, fully ten quarters ago.\u00a0 And they merely boosted gold to a much lower average of $1,793.\u00a0 This latest Q3\u201923\u2019s $1,926 is actually the , only behind Q2\u201923\u2019s $1,978!\u00a0 No matter what happens to gold majors\u2019 mining costs, these much higher prevailing gold prices alone will really boost profitability.<\/p>\n The GDX top 25\u2019s average all-in-sustaining costs are way harder to divine leading into earnings season.\u00a0 But the gold miners themselves offer plenty of clues for those willing to dig.\u00a0 A year ago in Q3\u201922, the GDX top 25\u2019s AISCs averaged a record-high $1,391 per ounce!\u00a0 The $1,727 average gold prices less those lofty AISCs yielded sector-implied unit profits of $335 per ounce, the <\/p>\n That makes for a low comparable-quarter base from which last quarter\u2019s gold-mining earnings can soar.\u00a0 In the latest reported Q2\u201923, the GDX top 25\u2019s AISCs weren\u2019t much better way up at $1,380 per ounce.\u00a0 But like usual that was skewed high by a couple of serious outliers from usual-suspect very-high-cost miners.\u00a0 Without them, the rest of these gold majors averaged $1,299 AISCs.\u00a0 Those should come in lower in Q3\u201923.<\/p>\n These companies themselves generally predicted , mostly driven by higher production.\u00a0 Gold-mining unit costs tend to be inversely proportional to gold-output levels.\u00a0 The richer the ores fed into fixed-capacity mills, the more ounces recovered to spread mining\u2019s big fixed costs across.\u00a0 Better ore grades forecast in Q3 mining plans, along with some mine expansions, should boost production.<\/p>\n A great example of this came from mighty Newmont, the world\u2019s largest gold miner, and GDX\u2019s biggest component.\u00a0 Thanks to gold production collapsing 17.1% YoY in Q2\u201923, NEM\u2019s AISCs that quarter soared 22.8% YoY to an ugly $1,472 per ounce!\u00a0 That was the worst Newmont ever reported by far, dragging up the entire GDX top 25\u2019s average.\u00a0 And this super-major wasn\u2019t even one of those two very high-cost outliers.<\/p>\n Yet Newmont\u2019s Q2\u201923 quarterly report explaining all this still predicted far better H2\u201923 results.\u00a0 Although its AISCs were way too high at $1,376 and $1,472 in H1\u201923\u2019s two quarters, NEM still affirmed it was \u201cOn track to achieve full-year guidance … with Gold AISC between $1,150 and $1,250 per ounce\u201d.\u00a0 Since those averaged $1,424 in H1\u201923, to even $1,250 requires far lower H2\u201923 costs.<\/p>\n We are talking about NEM having to through Q3 and Q4!\u00a0 That seems like a tall order, as this colossal gold miner hasn\u2019t reported lower AISCs since Q4\u201921.\u00a0 But even if this company has to raise this year\u2019s AISC guidance range, costs are still likely to be considerably lower.\u00a0 Plenty of other major gold miners joined Newmont in forecasting lower H2\u201923 AISCs right in their latest reported Q2\u201923 results.<\/p>\n We could do similar math for all the GDX top 25 reaffirming full-year cost guidance.\u00a0 But conservatively their average AISCs ought to retreat at least 5% YoY from Q3\u201922\u2019s record high.\u00a0 That yields a $1,322 target, or just $1,177 if that handful of serious outliers are excluded.\u00a0 It wouldn\u2019t surprise me if the entire GDX top 25\u2019s average warts and all in Q3, which would be a six-quarter low.<\/p>\n But even if we use that conservative $1,322 AISC target, the gold miners are soon going to report fat profits last quarter.\u00a0 Q3\u201923\u2019s high $1,926 prevailing gold prices less $1,322 AISCs yields implied unit profits of $604 per ounce.\u00a0 That would above Q3\u201922\u2019s depressed $335!\u00a0 That would prove the strongest major gold miner earnings growth seen in at least the last 29 quarters.<\/p>\n The previous record in this long research thread was a 66.2% YoY jump in Q2\u201920 to $730 per ounce.\u00a0 If my more optimistic $1,250 average AISCs is correct, Q3\u201923\u2019s GDX-top-25 average unit profits will more than double rocketing 101.7% YoY to $676!\u00a0 No matter how this upcoming Q3 earnings season plays out, the major gold miners are going to report .\u00a0 Key investors will take notice.<\/p>\n Individual investors mostly ape herd sentiment, crowding into gold stocks to chase their upside when they are already surging with gold.\u00a0 But professional investors, particularly fund managers controlling large amounts of capital, do endless research to temper their own greed and fear.\u00a0 If interested in this sector, they do the necessary analytical work on gold miners\u2019 quarterlies to understand their fundamental trends.<\/p>\n I\u2019ve heard from plenty of professional investors over the years on my quarterly gold-stock fundamentals essays.\u00a0 Some can\u2019t believe I\u2019m freely sharing this valuable analytical work to help sell newsletters.\u00a0 If the GDX top 25\u2019s average unit earnings merely beat Q2\u201923\u2019s $598 per ounce, that will make for the of improving profits.\u00a0 That should help attract bigger-than-usual professional buying.<\/p>\n That won\u2019t just come in the leading ETFs like GDX, but individual gold stocks.\u00a0 If Newmont or any other gold miner reports Q3\u201923 results way better than either expectation, the prior Q2\u201923, or the year-ago Q3\u201922, institutional investors should flock into those gold stocks.\u00a0 Their likely sharp gains will amplify GDX\u2019s upside, hastening the herd shift back to bullish psychology which will greatly increase buying.<\/p>\n Gold stocks have been battered technically in recent months, as this chart shows.\u00a0 That sure slammed sentiment, leaving this small contrarian sector really out of favor.\u00a0 If you need to get up to speed on why gold and gold stocks were pounded lower, my last couple of weeks\u2019 essays analyzed each causal chain in depth.\u00a0 But as I predicted, both the metal and its miners\u2019 stocks from their parallel breakdowns Gold was slammed by heavy gold futures<\/span> short selling to a violent breakdown into early October, as the USDX surged again on hawkish jawboning from top Fed officials.\u00a0 But that left speculators\u2019 gold futures positioning excessively bearish, their capital firepower available for selling exhausted.\u00a0 That guaranteed was imminent, portending a sharp gold bounce back into its uptrend.<\/p>\n That\u2019s indeed exactly what happened since, with both gold and GDX blasting back up into their briefly-interrupted uptrends.\u00a0 Gold stocks clawed back strongly, nearly erasing recent weeks\u2019 anomalous losses!\u00a0 These rapidly improving technicals are quickly reversing that recent bearish sentiment, shifting herd psychology .\u00a0 Gold stocks starting to return to favor is a great backdrop for Q3 results.<\/p>\n The gold miners\u2019 fat Q3 profits would be largely ignored if this sector was plunging to new lows.\u00a0 But with gold stocks surging back into this past year\u2019s strong uptrend, way more speculators and investors will be paying attention.\u00a0 The higher and longer gold stocks rally, the more bullish herd psychology grows, and the more traders will want to buy to chase those gains.\u00a0 Fantastic Q3 results are another great excuse to do that.<\/p>\n This latest quarter of is being reported while gold is soaring back on big gold-futures mean-reversion buying.\u00a0 And that ought to persist for at least a few months given how lopsidedly-bearish specs\u2019 recent gold-futures positioning had become.\u00a0 Gold continuing to rally on balance is fertile sentimental ground for blowout earnings to stoke big gold-stock buying.\u00a0 Q3 results won\u2019t be overlooked.<\/p>\n And there\u2019s one more supremely potent factor that should supercharge gold stocks\u2019 coming upside.\u00a0 Gold-stock uplegs and corrections are defined by gold\u2019s own, and GDX tends to amplify those material moves by 2x to 3x.\u00a0 After its last powerful 26.3% upleg peaked in early May, gold had been grinding lower in a sub-10% pullback.\u00a0 But as October dawned, gold\u2019s violent breakdown stretched that selloff into correction territory.<\/p>\n Gold\u2019s total retreat extended to 11.3%, bottoming just under $1,820.\u00a0 That means this bull\u2019s next major move higher which is already well underway .\u00a0 And it won\u2019t have to grow very big before gold challenges new all-time-record highs!\u00a0 Gold\u2019s nominal closing peak of $2,062 was seen back in August 2020.\u00a0 Impressively gold only has to rally 13.3% from that recent low to achieve new record highs.<\/p>\n That\u2019s nothing for gold uplegs.\u00a0 Again the last one soared 26.3% in 7.2 months into early May, and 2020 saw a pair of 40%+ monsters crest!\u00a0 As of mid-week, gold has already closed more than half that distance surging 7.1% to $1,949.\u00a0 So it before surging back into nominal-record territory! \u00a0That\u2019s not much, and could easily happen in the coming weeks as Q3\u2019s earnings season unfolds.<\/p>\n Nothing is more bullish for herd psychology than challenging new record highs.\u00a0 The closer gold nears that $2,062 all-time high-water mark, the more bullish financial media coverage will explode.\u00a0 All that attention will fuel widespread greed to chase gold\u2019s mounting gains, leading to big capital inflows in both the metal . \u00a0This coming gold-record hype could start building as Q3 results are reported.<\/p>\n That would really amplify their bullish sentimental impact, driving even bigger gold-stock buying that could quickly become self-feeding.\u00a0 There\u2019s still time to get deployed in still-cheap gold stocks before far more traders start chasing them. \u00a0Our newsletter trading books are currently full of fundamentally superior mid-tier and junior gold miners who should enjoy way better gains than the GDX majors as gold nears records.<\/p>\n The bottom line is the major gold miners are going to report fat profits in their imminent Q3 results.\u00a0 The combination of much higher prevailing gold prices and forecasted lower costs ought to make for some of this sector\u2019s best earnings growth ever.\u00a0 Gold stocks\u2019 rapidly-improving fundamentals should help attract back more professional investors including fund managers.\u00a0 Their big buying will really amplify sector gains.<\/p>\n And gold\u2019s upcoming assault on nominal all-time-record territory could supercharge the impact of blowout Q3 results.\u00a0 The closer gold gets to new record closes, the more bullish financial media coverage will fuel popular greed.\u00a0 Growing ranks of traders will flock back into the metal and its miners\u2019 stocks to chase their strong upside momentum.\u00a0 That process could start in the coming weeks before Q3\u2019s earnings season ends.<\/p>\n![](\"http:\/\/kupitiblog.store\/576r\/wp-content\/uploads\/2023\/10\/d1efb2889ec5c37e797d59ec8d2e5957.png\")
Gold-Yearly Chart<\/span><\/p>\n