Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Gold Miners Are Crushing Gold in This Inflation Cycle
Transcript
- Lucas: Gold is up nearly seven percent in the last five days. That's a big move. But gold mining stocks — the companies that actually dig the stuff out of the ground — they're up eighteen percent over the same stretch. Luna: That's a massive gap. Three times the return in less than a week. What's driving that? Lucas: It's a classic operating leverage story. When the price of gold rises, a miner's revenue goes up dollar for dollar, but their costs — labor, energy, equipment — they don't move nearly as fast. So the incremental revenue drops straight to the bottom line. Luna: Right, so a five percent bump in gold can turn into a fifteen or twenty percent bump in earnings per share for a well-run miner. Lucas: Exactly. And that's what we're seeing play out right now. GDX, the main gold miner ETF, is at eighty-seven dollars. It's up eighteen percent in five days. Meanwhile GLD, the gold bullion ETF, is up about six and a half percent. The ratio between them is snapping higher. Luna: So the market is basically pricing in that gold stays elevated, or even goes higher. Because if this is just a temporary spike, miners won't sustain those margins. Lucas: That's the bet. And there's some macro support for it. The ten-year breakeven inflation rate — that's the market's expectation for average inflation over the next decade — just ticked up to two point three two percent. That's up from two point three one yesterday. Small move, but the direction matters. Luna: And core CPI came in at three three six point one in May, up from three three five point four. Inflation is sticky. The Fed is on hold at three point six five percent on reserves. No cuts anytime soon. Lucas: Right. So in that environment, gold has a bid. And miners have an even bigger bid because of that leverage. But there's another factor here that a lot of people miss. Luna: What's that? Lucas: Costs are actually falling for miners. Diesel prices are down year-over-year. Labor costs in major mining regions like Australia and Chile have stabilized. Some of the big producers — Newmont, Barrick — they've been cutting capex and focusing on free cash flow. Luna: So you've got revenue going up and costs going down. That's a margin double play. Lucas: Exactly. And the market is repricing those margins very quickly. GDX is up eighteen percent in a week, but it's still only about flat year-to-date. Gold itself is up about twelve percent this year. So there's still a gap. Luna: So you're saying miners have room to run even if gold just stays here? Lucas: I think so. Historically, when gold rallies, miners tend to catch up over the following months. The ratio of GDX to GLD is still below its long-term average. If that ratio normalizes, miners could have another ten to fifteen percent upside even without gold moving higher. Luna: That's a compelling setup. But there are risks. Mining stocks are volatile. They have operational risk — a mine can flood, a government can change royalty rates. Not the same as owning bullion. Lucas: Absolutely. Gold is a store of value. Miners are equities. They have management teams, debt, geopolitical exposure. If gold drops, miners drop faster. That leverage works both ways. Luna: So who should consider miners right now? Someone who already has gold exposure and wants to amplify it? Or someone who doesn't own gold at all? Lucas: I'd say it's more for someone who already believes in gold as an inflation hedge and wants a more aggressive way to play it. If you own GLD, swapping a portion into GDX could boost your returns if the rally continues. But it's not a replacement for core gold exposure. Luna: Makes sense. And if you're thinking about adding miners, you probably want to look at the larger, lower-cost producers. The GDX holds mostly majors. The GDXJ — the junior miners — is even more volatile. Lucas: Right. The juniors have more leverage to gold, but also more risk. They're often single-mine companies, higher cost, more debt. In a rally, they can skyrocket. In a downturn, they can go to zero. Luna: So GDX is the sweet spot for most investors. Reasonable diversification, decent liquidity, and you get that operating leverage without taking on single-stock risk. Lucas: Exactly. And look, we've been talking about inflation and your money for fifty-five episodes now. If these conversations have helped you think about a decision differently — whether it's about gold, or your emergency fund, or how to position for inflation — honestly, if today was worth a coffee to you, that's the link. It's buy me a coffee dot com slash fexingo. Luna: Yeah, listener support is what keeps this show ad-free and independent. No pressure, but it does make a difference. Lucas: Alright, back to miners. One more thing I want to touch on: the recent price action in silver. Silver is up over ten percent in the last five days, even more than gold. And silver miners — well, there's not a great ETF for pure silver miners, but the silver futures themselves are rallying hard. Luna: Silver has that dual role — monetary metal and industrial metal. So when you get inflation fears plus potential economic growth, silver can outperform. Lucas: Right. And the gold-silver ratio is still elevated around eighty. Historically, when that ratio drops, silver tends to catch up. Some analysts think silver could go to seventy-five dollars if the gold rally continues. Luna: That's a big if. But it's worth watching. For listeners who want to dig deeper, the key data points are the breakeven inflation rate, the Fed funds rate, and the gdx to gld ratio. Those three tell you a lot about where this trade is heading. Lucas: Great summary. I'd also keep an eye on the dollar. If the dollar weakens, gold and miners get an additional tailwind. The dollar index has been hovering near recent highs, so that's a headwind right now. Luna: So to wrap up: gold miners are crushing gold because of operating leverage and falling costs. The setup looks favorable if inflation stays sticky and the Fed stays on hold. But it's a leveraged bet — know what you own. Lucas: Well said. That's all for today. We'll be back tomorrow with another angle on protecting your purchasing power. Luna: Thanks for listening, everyone.