Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Gold Investment Gains
Transcript
- Lucas: So gold is sitting near four thousand one hundred and forty-four dollars an ounce as of this afternoon, and over the last five days it's actually down about a third of a percent. Hardly a crash, but given all the inflation anxiety out there, you'd think the ultimate inflation hedge would be ripping higher. Luna: Especially when the latest CPI print came in at three hundred thirty-four, up from three hundred thirty-two-point-four-one in the prior month. Core CPI is still sticky at three hundred thirty-six-point-one. So inflation is real, and gold isn't exactly screaming 'buy me'. Lucas: Right. And the ten-year breakeven inflation rate — which is basically the market's expectation for average inflation over the next decade — is stuck at two point two five percent. That's not negligible, but it's well off the peaks we saw a couple years ago. So maybe the market is saying inflation is contained, and gold's rally is taking a breather. Luna: But here's the thing we haven't talked about on the show before: gold mining stocks. The GDX ETF, which holds a basket of gold miners, is down over three percent in the last five days. That's a much bigger drop than the metal itself. Why the divergence? Lucas: Yeah, it's a great question. And if our conversations about money have helped you think about a decision differently, honestly, if today was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Luna: It's a small way to keep the show ad-free and focused on what matters. Lucas: Exactly. So back to gold miners. The GDX at seventy-five eighty-five, down three-point-three percent in five days, is telling us something about the profitability of digging gold out of the ground. When the metal price is high, miners' margins expand, but there are costs — labor, energy, equipment — that are also being inflated. Luna: So even if gold holds at four thousand, if a miner's production costs go up ten percent, their profit margin could actually shrink. That's what the market might be pricing in right now. Lucas: Exactly. And there's another layer: gold stocks often trade like a leveraged play on the gold price. If investors think gold is going to four thousand five hundred, miners could double. But if they think gold is stuck here, miners might fall more than the metal because the leverage works both ways. Luna: And the breakeven inflation rate being flat at two point two five percent suggests the market doesn't expect a huge acceleration. So maybe the easy money in gold miners has already been made. Lucas: Let's look at the numbers. Gold is up about twelve percent year to date, but the GDX is actually down slightly over the same period. That's a big gap. Part of it is that the miners had a huge run in 2024 and early 2025, so they're consolidating. But part of it is also that the Federal Reserve is holding rates steady — the fed funds rate is still at three point six three percent. Luna: Higher rates are a headwind for gold because it doesn't pay interest. But for miners, higher rates increase their cost of capital. They borrow to build mines, and if debt is more expensive, that eats into returns. Lucas: Right. And we saw in the recent Fed minutes that officials were split on the direction of rates. So uncertainty about when cuts might come is keeping a lid on gold stocks. Meanwhile, the S&P 500 is at seven thousand five hundred thirty-four, up zero point seven percent in five days. Equities are doing fine, so money is flowing to tech and growth, not to gold miners. Luna: But for the listener who owns gold as an inflation hedge in their portfolio — maybe through a gold ETF like GLD — should they be worried that the miners are falling? Lucas: Not necessarily. GLD, which holds physical gold, is at three hundred seventy-nine fourteen, up zero point three percent in five days. It's basically tracking the metal. The divergence with miners is more of a signal about the equity market's view on gold companies, not about gold itself. Luna: So if you own physical gold or a gold ETF, you're still getting the inflation protection, but you're not getting the leverage. If you own miners, you're taking on more risk for potentially more reward. Lucas: Exactly. And there's one more thing: the geopolitical premium. Gold often rallies when there's geopolitical uncertainty. Right now, with no major new crises, that premium is low. The VIX, the fear index, has been relatively calm. So gold is trading more on real yields and the dollar. Luna: And the dollar has been relatively strong, which also pressures gold. So we've got a lot of forces keeping gold in a range. Lucas: For the listener trying to protect purchasing power, the takeaway is: don't assume gold stocks are a simple proxy for gold. They are a different asset class with their own risk factors. If you want pure inflation protection, a gold ETF or even TIPS might be cleaner. Luna: And if you do want to own miners, maybe look at their cost profiles. Some miners have lower all-in sustaining costs and are better positioned if inflation stays sticky. Lucas: Good point. We could do a whole episode on individual miners. But for today, the big picture is: gold is holding up, miners are not, and the gap tells you something about where the market thinks inflation is headed. Luna: And with the breakeven rate flat, the market seems to be saying 'we've got this.' Whether that's right or not is another story. Lucas: We'll be watching the next CPI print and the Fed's next move. For now, keep an eye on that GDX versus GLD spread. It's a useful signal.