Rare Profits Unique to Gold Mines

Currently, the profit margins of high-cost gold miners have reached their highest level since the 1980s. Using a 5-year forward price of $3,650 per ounce, the profit margin for gold producers has exceeded 40%. This profit margin is significantly higher than that of other commodity producers.

For other commodities, such as copper and oil, their long-term prices are typically anchored around marginal costs. For example, the long-term price of copper is closely related to the 90th percentile of total costs. This is because producers of these commodities often hedge to lock in future production costs and revenues, causing long-term prices to fluctuate around marginal costs.

The uniqueness of gold: In contrast, the long-term price of gold (such as the 5-year forward price) has significantly exceeded marginal costs. Currently, the 5-year forward price of gold is close to $4,000 per ounce, while the 90th percentile of total costs is only about $2,300 per ounce. This indicates that the long-term price of gold has decoupled from the anchoring of marginal costs.

Reason analysis: This decoupling phenomenon is primarily due to the supply and demand structure of the gold market. Consumers of gold (such as central banks and investors) have a strong demand for above-ground stocks, which makes the long-term gold curve relatively more liquid compared to other commodity markets. The lack of sufficient producer hedging has led to increased consumer demand for stocks, driving up long-term gold prices.