At a time when the world is plagued by a serious pandemic and the economy seems erratic and uncertain at best, an increasing number of investors have somehow turned their attention—and their pockets—to gold mining shares.
It is hardly a mystery why; many gold mining companies have announced that they are still paying dividends on their shares, and in some cases, are even increasing the amount that they are paying to shareholders despite the widespread cut in dividends in many other sectors. But…
How are these companies able to continue paying dividends?
The answer lies in the fact that the average All-In Sustaining Cost (AISC) for most gold miners currently range between US$800-1,300 per ounce of gold produced. Now, with gold prices (revenue) near US$1,800 and rising, the margin (revenue minus cost) of many gold mining companies are widening even amidst the crisis.
It is no surprise then when words such as “cash rich” are being thrown around when gold miners are mentioned—miraculously, gold mining has risen above the debilitating effects of the pandemic and is now performing even better than it was back in 2019, when its revenue was approximated to be around US$1,200 and its AISC stood at US$1,000 (see Chart 1).
If most already share the belief that gold is a “safe haven asset”, then these numbers can only bolster their confidence in good old gold.
Chart 1: Average All-In Sustaining Cost (AISC) vs Average Gold Price
Final Thoughts…
Where is the future of gold headed?
With factors coinciding on both the micro- and macro-level, we have a valid case to believe that the rise in gold’s value is indeed sustainable. Furthermore, given the typical gold bull market in the last 10 years showed an average increase of ±1000% (see Chart 2), and we, at the start of a new decade, have only seen a relatively modest 70% rise in the value of gold since Dec 2015, the future of gold looks almost certainly bright.
Chart 2: Bull Markets in Gold
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