Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Why Gold Miners Are Surging While Bullion Stalls
Transcript
- Lucas: So gold's had a decent week — up about two percent in the last five sessions, sitting around four thousand five hundred and ninety two dollars an ounce. But here's what caught my eye: gold mining stocks have absolutely ripped. Luna: Yeah, I saw that. The GDX gold miners ETF is up more than five percent over the same stretch. That's a pretty big gap. Lucas: It is. And it's not just one day of noise — the miners have been outperforming bullion for a few weeks now. I want to understand why. Because normally, mining stocks track the metal pretty closely. When they diverge this much, something else is going on. Luna: Well, one obvious candidate is costs. If input costs — energy, labor, materials — are easing, miners' margins expand even if the gold price stays flat. That would explain the stock move. Lucas: Right. And we did get some encouraging inflation data recently. The April CPI came in at 332.4 — that's up from 330.29 in March, so still rising, but the pace has moderated. And the 10-year breakeven inflation rate is sitting at 2.39 percent, basically flat. So the market's not pricing in a reacceleration. Luna: But if inflation's moderating, why would gold be going up at all? Gold's supposed to be an inflation hedge. If inflation fears fade, gold should fall. Lucas: That's the puzzle. And I think the answer lies in what the miners are telling us versus what bullion is saying. Gold at four thousand five hundred is still elevated in historic terms. It's held those gains even as real rates have stayed positive. So maybe the market is pricing in something other than just CPI — like geopolitical risk, or central bank buying. Luna: Central bank buying has been huge. We've seen that from China, India, Turkey… they're diversifying reserves away from the dollar. Lucas: Exactly. And that structural demand doesn't show up in the CPI report. But for miners, the calculus is different. Their costs are largely domestic — diesel, electricity, wages. If those costs are stabilizing, their margins get a double boost: a high gold price and lower input inflation. Luna: So the GDX move might be a bet on margin expansion rather than a bet on the gold price going higher. Lucas: I think so. And there's another angle: the gold-silver ratio. Silver's actually down a bit this week — spot silver is at 75.82, off about 0.6 percent. When gold outperforms silver that consistently, it can signal that the market is cautious, not euphoric. Luna: Right. Because if investors were really bullish on precious metals, silver would be rallying harder. It's more volatile, more industrial, but also more speculative. Lucas: So the miners' rally might be a 'good news' story about costs, not a 'gold to the moon' story. And that's actually more grounded. Let me pull up a specific example — one of the larger holdings in GDX is Newmont. They reported earnings a few weeks ago and guided for all-in sustaining costs around 14 hundred an ounce this year. If gold stays above 45 hundred, their margins are enormous. Luna: That's over three thousand dollars per ounce of margin. Even with higher capex, that's a cash machine. Lucas: Exactly. And the market is starting to price that in. But here's the risk: if gold pulls back even ten percent, those margins compress fast. Mining stocks have operating leverage — a small change in the gold price can hit earnings hard. Luna: So the GDX rally could be a 'catch-up' trade. Gold's been high for a while, and maybe investors finally decided to buy the producers. Lucas: I think that's part of it. And there might be a tactical element too. Look at the five-day performance: the S&P 500 is up 1.6 percent, the Nasdaq up 2.6 percent. So risk appetite is decent. Money might be rotating out of big tech into value or cyclicals, and miners fit that bill. Luna: Speaking of which — I want to ask you about something you mentioned earlier. You said the breakeven inflation rate is flat at 2.39 percent. That's still above the Fed's target, but it's not spiking. So does the bond market see this gold rally as a false signal? Lucas: I think the bond market is saying: inflation is sticky but not accelerating. The Fed's effectively on hold — the effective fed funds rate is 3.64 percent and hasn't moved. Governor Bowman actually warned against hiking rates this week because of an inflation spike. So the official line is still 'wait and see'. Luna: But if the Fed doesn't cut and inflation stays above target, real rates remain positive. That's usually bad for gold. It's a non-yielding asset. Lucas: It is. And yet gold is holding. That's why I keep coming back to structural buying — central banks, sovereign wealth funds, maybe even retail in emerging markets. That demand doesn't care about real rates the way a hedge fund does. Luna: So for the average listener trying to protect purchasing power — what do they do with this? Do they buy gold, miners, TIPS, or just stay in cash? Lucas: I think the takeaway is: don't confuse the miners' rally with a bullion rally. They're related but not the same. If you believe gold stays high because of central bank buying, miners could be a leveraged play. But if you think the next move in gold is down, miners will fall harder. So it's a question of conviction and risk tolerance. Luna: And what about the gold-silver ratio? It's around 60 right now — silver's 75.82, gold 45 92. That's not extreme historically, but it's above the long-term average. Lucas: If you think we're in a precious metals bull market, silver usually catches up. But it hasn't yet. That cautious signal makes me wonder if the miners' rally has legs. I'd be watching GDX versus GLD — the ratio. If miners keep outperforming, it confirms the cost story. If they stall, it might mean the gold price needs to confirm. Luna: Before we wrap, I want to circle back to something you said about the value of these conversations. You know, we spend a lot of time digging into numbers and data to help people make sense of their money. And that's exactly the kind of thing that keeps this show ad-free — because listeners like you support it directly. Lucas: Yeah, it's true. We don't run ads, we don't have sponsors. The show stays independent because of people who find value in it and want to keep it that way. If you've ever gotten a useful idea from one of these episodes, you can support us at buy me a coffee dot com slash fexingo. Luna: And it genuinely makes a difference. Even a small contribution helps us keep the lights on and the research deep. So thank you to everyone who already does. Lucas: Alright, back to the gold story. One more data point I want to watch: the Russell 2000 — small caps — is up 1.8 percent this week. That's a risk-on signal. If small caps and miners are both rallying, it suggests the market is broadening out, which could be supportive for gold miners as a cyclical play. Luna: So the macro backdrop is actually pretty supportive for miners right now: moderating input costs, high gold price, and a risk-on mood. The question is whether gold can hold those levels. Lucas: Right. And I don't think we'll get the answer this week. But the divergence between gold and miners is a signal worth watching. If GDX keeps climbing while gold stagnates, it's a bet on margins. If gold catches up, the rally broadens. Either way, there's a trade there. Luna: And for listeners who want to protect purchasing power without the volatility of miners, TIPS or I bonds are still a solid option — especially if you're worried about inflation staying above 2 percent. Lucas: Absolutely. There's no one-size-fits-all. But understanding why miners move differently from bullion is a useful lens. It's a reminder that even within an asset class, the drivers can be very different. Luna: Alright. Good conversation. Let's keep an eye on that GDX to GLD ratio. Lucas: Will do. And if you're watching along, you can check those tickers yourself — GLD and GDX — and see what the spread is doing. Thanks for listening, and we'll be back tomorrow.