Miners look at Australia’s largest open-pit gold mine called the Phimiston Open Pit, also known as the Super Pit, in the gold mining town of Kalgoorlie, located about 500 kilometers east of Perth.
David Gray | reuters
The price of gold fell sharply on Monday morning as investors continued to reduce exposure to the precious yellow metal, which is testing its status as a safe-haven trade amid the ongoing war in Iran.
The recent decline essentially has a second-order effect on the miners, whose market value had soared before the war as gold prices skyrocketed.
Mining companies are among the most volatile stocks, typically acting as a leveraged bet on the price of gold, which rises during commodity rallies and falls further during selloffs. Since the war, the price of gold has fallen, miners’ revenues have declined, and oil and gas supply shocks have pushed up energy prices, driving up their costs.
Before the conflict, they had made significant profits as the price of gold reached an all-time high of more than $5,500 an ounce. The spot price of gold has fallen nearly 25% from its high in late January and was last seen trading at $4,250 as of 6:05 a.m. ET on Monday.
VanEck Gold Miners ETF An increase of nearly 200% by 2025, but some of these gains have since diminished. The fund has fallen 27% year to date and shows little sign of recovery as the US and Israel’s war against Iran escalates.
How the price of the VanEck Gold Miners ETF compares to the spot price of gold from now until 2026.
The outlook for miners has changed significantly over the past few weeks, with market volatility reducing margins on both sides.
“It is interesting to see the reactions of the resources sector to both energy supply shocks and geopolitical risk events,” said Rob Stein, head of resources research at Macquarie Capital.
“The combination of the two with increased uncertainty potentially driving changes to asset allocation levels, the recent rally is grounds for profit taking, especially in the smaller portion of the market.”
Russ Mould, investment director at AJ Bell, said higher energy costs are a “real threat” to gold miners’ margins.
“We saw this in 2006-07, when total production costs rose rapidly,” he said.
While gold bullion is a pure commodity play, miners bring additional equity risk. lMaking them vulnerable to an increasingly volatile macroeconomic environment.
“Miners are facing huge economic headwinds, which explains why investors are retreating from the sector,” said Michael Field, chief equity strategist at Morningstar.
“Until risk sentiment improves and confidence in global growth is restored, it is unlikely that miners will resume their bullish path.”
Field said there is also an element of investors taking profits and selling their best-performing assets in recent years to raise cash.
The retreat from gold – traditionally seen as a key safe-haven asset in times of market turmoil – chimes with an ongoing risk-off sentiment in markets due to concerns over inflation and rising energy prices due to the Iran conflict.
Market strategists recently told CNBC that the prospect of higher interest rates as a result of the war could boost government bonds among investors at the expense of non-yielding precious metals.
