With everybody questioning the investment case of  investing in gold mining equities, I just wanted to repeat how I see things in the North American Gold mining landscape.

The main reason that the GDX has declined far more than Australian gold producers is due to the fact that most GDX gold producers produce at a rather high All in Cost like  800$-1100$

Even in the recent posting from Hamilton, it is very obvious AISC are on the rise again! Only NCM, BVN and AUY did manage to lower their costs base.

http://www.321gold.com/editorials/hamilton/hamilton081718.html

So with average costs increasing 5% and gold down 12%, it is very normal the GDX is down 18% it could even been worse.

I believe the best strategy to survive any weakness in gold and profit from possible upside, is to play the low cost producers/developers.

These names are VERY limited like KL, GOLD, BTG, PVG, ROXG, EDV, just to name a few.

In order to know which name is expensive or not, the best metric is Free cash flow yield after sustained Capex.

At $1100 gold, ABX and GG offer 6% Free cash flow yield, not that bad, so this could put a floor on these stocks in the future.

I believe gold stocks as an asset class will only be attractive for generalist investors once we have gold at $1500+.

Maybe $1500 is too aggressive, even at $1400$, gold miners should start paying higher dividends than now and attract more investors.

At $1500 gold the free cash flow yield of GG and ABX should triple to 17-18%, and attract lots of investors chasing yield. And this by having gold up only 35%.

Of course after the current decline in gold, it is difficult to imagine, but it clearly shows the potential by investing in gold equities.

But in order to arrive there and survive any volatile period that can still come (gold at 1100$), I can only suggest to do your home work and invest only in low cost producers or developers with AISC less than $700-800 like PGM, SBB,  OSK, GOR,… just to name a few.

Of course if gold prices do not recover or continue to weaken going forward, only the very strong companies will survive, so investing in gold funds or gold ETF will definitively not be rewarding.