Gold miners plunge as margins squeezed by falling bullion, soaring energy costs
Sector ETF hits deeply oversold levels as Iran conflict drives investors to oil over precious metals
Gold mining shares experienced their steepest decline in more than four decades on Monday as a dual squeeze from plummeting bullion prices and soaring energy costs threatens profit margins across the sector.
The VanEck Gold Miners ETF (GDX), which tracks the largest producers, has fallen to deeply oversold territory with its Relative Strength Index (RSI) hitting 19, a level that typically signals extreme selling pressure. Major producers including Newmont, Barrick, Agnico Eagle and AngloGold Ashanti all declined between 5% and 6% in premarket trading, while the NYSE Arca Gold Miners Index dropped 6.6% as of Friday's close.
The sector's pain stems from a sharp reversal in gold prices, which have now fallen for nine consecutive sessions. Spot gold dropped 4.4% to $4,292.88 per ounce, after earlier sliding more than 8% to $4,097.99, its lowest level since November. The precious metal is now down approximately 25% from its January 29 record high of $5,594.82 per ounce, having suffered its largest weekly decline since February 1983 with a more than 10% drop last week.
Compounding the revenue squeeze is a surge in operating expenses. Crude oil prices hover near $100 per barrel due to the closure of the Strait of Hormuz, which could increase mining companies' energy costs by 12% to 40%. Energy represents one of the largest input costs for gold miners, particularly for open-pit operations that rely heavily on diesel-powered equipment.
"Gold's recent move lower has second-order effects for the prospects of the firms that dig the metal out of the ground," according to CNBC analysis. The confluence of lower gold prices and higher energy costs creates a margin compression scenario that could force production cuts if current conditions persist.
The deterioration in gold prices defies traditional safe-haven logic during periods of geopolitical tension. The Iran conflict, now in its fourth week, has instead driven investors toward oil and other commodities perceived as more direct beneficiaries of the crisis. Analysts note that inflation concerns and expectations of higher global interest rates amid the energy shock have diminished gold's appeal, as the metal offers no yield and becomes more expensive to hold when rates rise.
From a technical perspective, the gold miners sector is approaching capitulation. The Gold Miners Bullish Percent Index, which tracks the percentage of stocks in positive technical trends, fell to an incredibly oversold 3.7% this week. Such extreme readings have historically preceded short-term rebounds, though any recovery would likely require stabilization in both gold prices and energy costs.
With no immediate catalyst on the horizon for gold recovery, investors remain focused on the conflict's impact on energy markets. Iran has threatened to target infrastructure in neighboring Gulf states if the United States strikes its electricity grid, a scenario that would likely keep crude elevated and maintain pressure on mining margins.