As major gold miners share how inflation is impacting their businesses, it will be important to watch how commodity currencies perform against the dollar.
Adrian Day: Gold Miners Facing Inflation Woes, Watch this Pressure Pointyoutu.be
As inflation continues to run hot, its impact on mining companies is beginning to emerge.
Speaking about the latest quarterly results from major gold miner Newmont (TSX:NGT,NYSE:NEM), Adrian Day said that although figures came in worse than people expected, the market was also primed to react poorly.
"The market was just ready and watching," explained Day, who is president of Adrian Day Asset Management. "Are their costs going to be a little worse than we thought? Yes they are. Sell."
Day continued, noting that Newmont's results don't go past Q2. "Even if inflation peaked last month, we still don't have the full impact of those higher numbers yet in costs. That'll come in the third quarter," he explained.
He believes that moving forward it will be key to watch commodity currencies, which are currencies from countries that depend heavily on raw materials for income. These currencies tend to move along with commodities prices.
"Even though energy (prices are) high, the commodity currencies have been low — Australian dollar, Canadian dollar, Brazilian real, the South African rand and so on. The places where most mines are, which is where all your local costs are, those commodity currencies have been low," Day said.
"What we really need to watch for is if inflation, cost pressures generally in the economy, remain high," he continued. "Then you'll start to see (the commodity currencies) move up against the dollar, and then you'll have enormous cost pressures for the mines."
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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