If gold were a school boy his report card would read something like ‘a bright kid who shows promise, but lacks direction and rests on his laurels’.

In these times of geopolitical ructions and ratcheting inflation, the yellow metal should be in its element.

Bullion particularly has outshined in periods of stagflation (high inflation and low economic growth) and when real interest rates (taking inflation into account) are negative.

But having peaked at US$2050 an ounce in August 2020, gold has retreated 17 per cent to around US$1700/oz.

In $A terms the metal has fared slightly better, down 11 per cent to $2480/oz.

The paradox of gold’s behaviour is that while inflation is a friend, rising interest rates are not. That’s because gold isn’t income generating and higher rates exacerbate the opportunity cost of holding the metal relative to risk-free returns from investment such as bank deposits.

Mind you, gold tends to do well when ‘real’ interest rates (taking inflation into account) are negative, such as … now.

For the listed Aussie miners costs are becoming problematic, with the likes of Northern Star Resources (ASX:NST), Ramelius Resources (ASX:RMS) and Evolution Mining (ASX:EVN) recently issuing de facto earnings warnings.

In this week’s quarterly disclosure, Northern Star warned of per-ounce all in sustaining costs (AISC) rising 11 per cent in the current year, with output declining 7 per cent.

AISC takes into account not just direct operating costs but items such as general admin expenses, royalties and depreciation.

This month’s slew of June quarter updates will further reflect the persistent labour shortages, cost inflation and higher diesel costs. Bell Potter reckons the average AISC could be as high as $1900/oz.

But with any commodity there can only be so much gloom – as buyers who bought into oil at sub US$10 a barrel in the early days of Covid would attest.

The benefit of exposure through a miner is that when they do perform well, the benefits to investors are amplified well beyond the returns on a lump of bullion.

Naturally, when production costs rise faster than the gold price the low-cost producers are best placed.

But when gold rises faster than input costs – a likely scenario if or when the economy slows – the high cost producers actually have better financial leverage.

Macquarie lists 17 miners that have underperformed the gold price over the last three months. The worst are Dacian Gold (ASX:DCN) and Evolution, down 65 per cent and 47 per cent relative to gold, respectively.

Even worse, Wiluna Mining this week called in the administrators after its eponymous WA mine turned out to be more of a money pit than a gold mine (as it had been for a string of previous owners).

Investors seeking a pure-play exposure might consider buying physical bullion, or a proxy such as a gold ETF that merely tracks the bullion price (with or without a currency adjustment).

Exemplars include the Betashares currency-hedged Gold Bullion ETF (QAU). On a fancier note, the ETF Securities Metal Securities Australia (GOLD) bestows investors with silver, platinum and palladium exposures as well as gold.

Arguably, the ASX gold majors are decent value after their recent sell-down, although surfing the fortunes of the late stage developers might deliver better value in the longer term.

Macquarie’s gold watchers like Bellevue Gold (ASX:BGL) and De Grey Mining (ASX:DEG).

Bellevue Gold is developing its eponymous project in WA’s Goldfields region and is talking about 201,000 ounces for the first five years, at an AISC of $1000-1100 an ounce. With a three million ounce resource at an average grade of 9 grams per tonne, the project is a tad richer than your normal high volume low-grade Kalgoorlie effort.

De Grey is furthering its 250 million tonne, 10.6 million ounce Mallina Gold Project (Hemi discovery) in the Pilbara.

A scoping study points to output of 427,000 ounces an annum over at least 10 years at an average AISC of $1224/oz.

To the gold bugs the lure of lustrous stuff remains as strong as ever, especially given the supposed safe haven quality of digital currencies has been exposed as a cruel myth.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

At Stockhead, we tell it like it is. While De Grey is a Stockhead advertiser, it did not sponsor this article.