Photo Imaru Casanova © VanEck
By Imaru Casanova, portfolio manager specializing in gold and precious metals at VanEck
Gold posted a modest gain of 0.95% over the month, ending at $4,046.15 on 31 July, two days after the US Federal Reserve announced it would keep interest rates unchanged at its July meeting. Gold remained above $4,000 an ounce as investors continued to assess the outlook for monetary policy and the next meeting of the Federal Open Market Committee, scheduled for 16 September.1
According to the World Gold Council’s Q2 2026 Gold Demand Trends report, total gold demand was stable at 1,269 tonnes, unchanged year on year and up 1% quarter on quarter, as weaker investment demand was offset by stronger central bank buying. It was a volatile month for gold mining shares, which rallied early in July before losing momentum as gold retreated. The MarketVector Global Gold Miners Index (MVGDXTR) fell 1.26% over the month.2
Investing involves risks, including the possible loss of capital.
One of the most common concerns we hear from investors considering an allocation to gold mining equities is the risk that they will be significantly erode returns by rising production costs. This is a legitimate concern in an environment marked by geopolitical tensions, high energy prices and persistent inflation. But we believe it is largely overstated. The gold sector has a specific and compelling characteristic: the same forces investors fear most because they could weigh on gold miners are, in many cases, also the forces pushing up the price of gold.
To understand why miners are better positioned than their cost structures may initially suggest, it helps to start with gold itself. Gold has a long and well-documented historical relationship with inflation. During the inflationary surge of the 1970s, gold rose sharply in real terms. During the quantitative easing period that followed 2008, and again after the COVID stimulus measures, gold responded to the same monetary and fiscal forces that drove up the cost of almost everything else.
This matters enormously for miners. Unlike most industrial companies, where higher input costs squeeze margins without a corresponding lift in revenue, gold miners benefit from a natural hedge: the very macroeconomic environment that puts pressure on their cost base — including inflation, currency debasement and monetary uncertainty — has historically pushed up their main revenue driver, the gold price, at the same time. This is a structural feature of the asset class that we believe is not widely recognized.
The current bull market in gold has delivered something the 2000-2011 cycle largely failed to achieve: sustained margin expansion. Today’s miners have taken a fundamentally different approach by maintaining strict cost discipline, improving operations to offset sector-wide cost inflation, and adopting prudent mineral reserve strategies anchored to gold prices well below spot levels. They have also avoided the grade deterioration that weighed on earlier cycles. As a result, gold prices have risen much faster than mining costs, lifting margins to historic record levels.
The “natural hedge” we highlight for the gold mining sector is visible today in energy markets. Investors see high oil and diesel prices and quite reasonably, worry about mining operating costs. But it is worth pausing to consider why energy prices are elevated. One of the main drivers is geopolitical instability, including the conflict in the Middle East, the war in Ukraine, the fragmentation of global supply chains and the rise of resource nationalism. These are precisely the kinds of conditions in which gold has historically played its most important role: as a safe haven in times of uncertainty.
Part of the reason energy cost fears are overstated is that many investors overestimate how much of the cost structure is actually tied to fuel. In reality, the typical breakdown of second-quarter AISC looks like this:
Take Newmont’s 2026 direct operating cost breakdown (chart below). Newmont, the world’s largest gold miner, assumed a Brent price of $70 per barrel for 2026. It estimates that for every $10 per barrel move in Brent, costs would change by +/- $60 million, or about $11 per ounce of gold produced. That remains very manageable, particularly at current gold prices, where operating margins are still exceptionally strong.
The percentage breakdown for 2026 remains broadly in line with that of 2025
Source: Newmont. Data as of 30/06/2026. Represents results based on 2026 forecasts. The 5% “Other” category mainly includes transportation costs, technology-related costs, staff administrative expenses, rent and operating leases.
There is sensitivity to oil prices, but it is not the dominant cost driver. It is one component among several. Many miners meaningfully reduce their fuel exposure through long-term supply contracts, renewable energy sources and active hedging programmes.
Gold companies’ earnings season began in late July. Overall, we estimate that operating results so far have been broadly in line with expectations, and that second-quarter all-in sustaining costs (AISC) are averaging below $2,000 an ounce. With gold currently trading at around $4,000 an ounce, the sector is generating operating margins of roughly $2,000 per ounce, among the highest in industry history.
Even in a stress scenario in which gold prices stay flat and costs rise by 10-15%, the sector would still generate substantial free cash flow per ounce. The margin cushion built up at current gold prices is significant. Companies do not need gold to keep rising in order to remain highly profitable. They need gold to stay broadly in range, which is a much less demanding requirement.
This resilience matters because it changes what miners can do with their cash. We expect large-cap and mid-cap gold companies to remain committed to:
This is capital allocation discipline in a strong earnings environment, and it marks an important shift from the sector’s historical behaviour.
Concerns about cost inflation for gold miners are not without basis. In our research and assessment of these companies, we pay very close attention to cost trends, and in our frequent meetings with management teams, they are always a key topic. However, when viewed in broader context, the cost outlook for the sector is not quite as worrying as it may first appear. Gold miners have a natural hedge against inflation on the revenue side. Their main cost item is labour, not fuel. Their exposure to energy, while real, is partially hedged and structurally lower than many assume. And the geopolitical forces pushing energy prices higher are among the most reliable catalysts for an increase in the gold price.
Today, gold miners are generating a level of free cash flow that allows them to reward shareholders, meet obligations and invest in future production, all without needing to assume an exceptionally high gold price. In many respects, they are in the strongest financial position the sector has seen in years.
For investors considering an allocation and worrying that cost pressures will erode the opportunity, we suggest reframing the question. The risk is not that margins will collapse under the weight of costs. The more relevant question is whether investors are placing too much emphasis on cost pressures without giving equal weight to the sector’s strong margins and cash generation.weight to the sector’s strong margins and cash generation.
1 World Gold Council (31.07.2026)
2 MarketVector (31.07.2026)
Data/information sources unless otherwise stated: Bloomberg and company research, July 2026.
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