The downgrade reflects concern over miners’ operational sensitivity to higher oil and fuel prices during a period of elevated volatility across commodity markets.
GFN – ZURICH: UBS closed its tactical bullish view on gold mining equities Tuesday, arguing that rising energy costs tied to the Iran conflict and the sector’s continued failure to achieve a broad market rerating have weakened the investment case for miners despite expectations for higher gold prices ahead.
The report, titled “More Gold to Mine: Theme Closure,” noted that gold miners have fallen roughly 23% since the start of the Middle East conflict, alongside a 14% correction in spot gold prices and a sharp increase in energy costs. UBS analysts said the combination has pressured margins across the sector, particularly as fuel and energy remain major inputs in gold extraction.
“The recent rise in energy prices… represents a headwind for gold miners’ costs, as fuel and energy typically represent a significant portion of gold extraction costs.”
The bank acknowledged that many gold producers have improved balance sheets, tightened capital discipline, and focused more heavily on shareholder returns in recent years. However, UBS said those improvements have failed to trigger the broad valuation rerating the firm expected earlier this year.
“Our expectations for a rerating of the sector on the back of the overall increase in discipline and attention to shareholder returns have not materialized.”
The closure of the tactical theme marks a notable shift from the bank’s February recommendations, when analysts argued that sustained high gold prices and stronger fundamentals could drive further upside in mining equities.
UBS emphasized that it still expects gold prices themselves to rise in coming quarters, particularly if geopolitical instability persists. The downgrade instead reflects concern over miners’ operational sensitivity to higher oil and fuel prices during a period of elevated volatility across commodity markets.
