Operational leverage works in both directions

Gold miners are sold as leverage to the metal, and they are. The leverage that turns a rising gold price into a larger rise in profits turns a stalling one into a larger fall, because costs keep rising whether the metal does or not.

Leverage without a tailwind

A miner's profit is the gold price minus its costs. When the price rises faster than costs, margins expand quickly. When the price flattens, costs keep drifting up with energy and labour, and margins compress. The shares move on margins, so they fall even while the metal holds steady.

That makes the miners a bet on the direction of the metal, not its level.

What I'm watching

• All-in sustaining costs, and their trend
• The gold price's momentum rather than its level
• Energy prices, the most volatile cost input

Where I stand

Short, on a metal that looks set to pause while costs keep climbing. The miners will feel the pause more than the metal does.

What would change my mind

A fresh leg higher in gold with costs flat. That is the configuration where the leverage works in the miners' favour, and it would end the view quickly.