Theme of the Day: Gold miners outstrip AI and bitcoin

Gold mining stocks are outstripping leading artificial intelligence companies and bitcoin, as a bull run in precious metals fuels an even stronger rally for the “unloved” companies that dig them from the ground, according to an FT report. The S&P Global Gold Mining index has surged 126% this year, the best performer among the S&P sector indices.But the outperformance has sparked questions about whether the industry can maintain its financial discipline, with the sector still haunted by memories of the gold rush that followed the global financial crisis — and the crash that followed. An influx of profits fed a burst of corporate dealmaking, a jump in executive remuneration and a rise in production costs. The reckoning was brutal: from the peak in 2011, gold stocks plunged 79% over the next four years.Gold stocks have outperformed the underlying commodity because, with day-to-day production costs largely fixed, a higher price can translate into pure profit. The upswing in an industry sometimes dismissed as value destructive is set to deliver bumper profits for gold miners. Agnico Eagle is up 113% this year, Barrick has risen 114% and Newmont has gained 134%. Zijin Gold shares have doubled since the company went public on 30 Sep in the year’s second-biggest initial public offering.By comparison, Nvidia has added 40%, Oracle is up 72%, Google owner Alphabet has put on 30% and there has been a 25% increase at Microsoft. Bitcoin has risen 31%.Evy Hambro, head of thematic and sector investing at BlackRock, said “returning capital to long-suffering shareholders should be a key priority for gold mining companies, given the robust margins they are finally enjoying”. He wants companies to prioritise dividend payments over other methods such as share buybacks. “Even better would be to give shareholders the choice to receive payments in the form of a gold-backed ETF [exchange traded fund], rather than just dollars or other currencies,” he added.Yet the lure of M&A deals may be hard to resist. The scarcity of new gold mines could drive consolidation, as producers try to replace the reserves they continuously lose by extraction. Though share prices are high, all-share transactions such as the recent merger deal between Anglo American and Teck Resources may be a model for dealmaking.