For a mining company, gold is the natural hedge against its own cost inflation. A company investing in 15-year project cycles, whose greatest risk is cost escalation, holds the perfect hedge literally in its hands. One strategy: Hold enough gold to offset anticipated annual sustaining costs. Another: Increase holdings ahead of major capex endeavors.

The current cycle illustrates the point. With AISC at ~USD 1,600 and gold around USD 4,600, margins are at record levels – yet the industry converts virtually 100% of output into fiat. Had producers retained just 5% of production during 2013–2019 – when gold averaged USD 1,250 – those ounces would today be worth nearly 4x their original value, without a single drill hole required. These “post-production margins” carry no additional capital investment and far less risk than “next-production margins.” Selling is also a risk: Price upside opportunity is permanently forgone.

Healthier Leverage: The Royalty Logic for Producers

The valuation discount at which gold producers trade relative to royalty and streaming companies is one of the most persistent anomalies in the mining sector. While a Franco-Nevada or Wheaton Precious Metals commands EV/EBITDA multiples of 25–30x, even high-quality producers languish at 7–10x. The explanation lies not solely in the operational risks of mining but in the nature of the exposure: Royalty companies offer pure metal price leverage with significantly reduced operational risk. Every ounce a producer holds on its balance sheet offers similar “post-production” leverage. If investors prefer gold and silver to fiat, then every ounce held can support the company’s multiple. When sold, that multiple must then trend back toward that of an entity whose reserves are composed of instruments losing 10% annually in value.

To emphasize: An ounce of gold stored above ground is no longer exposed to the risks of mining – no geological risk, no operational risk, no political risk, no environmental risk. It offers pure, undiluted exposure to the metal price. It offers zero exposure to monetary debasement. Or, framed in the language of the Austrian School: The time preference shifts in favor of the future: The producer trades immediate but depreciating consumption (fiat proceeds) for the accumulation of a non-inflatable asset which can more likely support greater future consumption. Every metal ounce held offers the investor healthier leverage, and purer exposure, to the future itself.

Supply Discipline: From Price Taker to Price Maker

The supply-side implication is equally striking. What if major gold producers withheld 5–10% of annual output? And why should the logic stop there – why shouldn’t every company seeking to preserve its balance sheet’s purchasing power treat gold as a treasury currency? The empirical answer is unambiguous: backtests show that including gold among managed treasury currencies would have added meaningful value over decades.

Annual gold mine production currently stands at 3,672 t, or approximately 118moz. Withholding just 5% amounts to some 180 t – a figure that may seem modest in the context of central bank purchases, exceeding 1,000 t in each of 2022, 2023, and 2024, before easing to 863 t in 2025, but price discovery always happens at the margin.

The mechanism is mechanically trivial: Producers simply do not ship a fraction of monthly doré or refined output to the bullion bank. The metal moves from processing plant to corporate vault rather than from vault to market. No fiat round-trip is required, no tax event is triggered, and the full economic exposure remains with the producer until it chooses to realize it. For those concerned about liquidity, physical gold serves as first-class collateral against revolving credit facilities – a mechanism private investors, central banks, and even some sovereign funds already exploit. Producers need not worry about Basel III risk-weightings; unlike deposit-taking institutions, they face no regulatory constraint on holding their own product.

The Network Effects of an Industry Strategy

When a single producer pursues this path, the market impact is marginal. But if major gold mining companies were to follow, a self-reinforcing cycle would emerge: Withheld supply supports the price. A rising price improves margins. Better margins require fewer sales to cover actual costs and enable further withholding. And the combination of increasing metal price exposure and decreasing dependence on operational output leads to higher valuation multiples. Adjusting the weightings of this strategy when prices are at different stages of the cycle can allow for better capital allocation decision making and multiple options for cost-effective downside protection on metal held.

To put the numbers in perspective: Annual global silver mine production of roughly 820moz at a recent silver price around USD 75 equates to a market value of approximately USD 61.5 bn, still a rounding error in global financial markets. Put differently, a single day’s trading volume in a mega-cap such as Nvidia can exceed the entire annual output value of the silver mining industry. Precious metals markets, measured against global capital flows, remain tiny. Even moderate supply discipline at the producer level would have disproportionate price effects.

From Theory to Practice: The SilverCrest Experiment

Consider one example: The SilverCrest Metals team completed construction with excess capital, low costs, and at a unique time in the cycle. In hindsight, it’s easy to say that it was wise to hold onto metal when the selling price at the time of around USD 18 for silver and around USD 1,800 for gold was below their fully loaded total costs and well below the industry average AISC. With gold and silver at much higher levels now, the industry is at a very different part of the cycle with different capital allocation options in front of it.

The market ultimately validated this discipline: In February 2025, Coeur Mining completed its acquisition of SilverCrest in an all-stock transaction valued at approximately USD 1.7 bn. The bullion treasury was not a deal-breaker but a dealmaker – it was priced into the acquisition multiple, not discounted out of it. The corporate-gold-standard thesis earned an exit premium, not a conglomerate discount.

To forestall the inevitable objection: Michael Saylor’s (Micro)Strategy has pursued a parallel thesis with Bitcoin since 2020, turning a software company into a digital-asset treasury vehicle. The difference is one of capital structure, not of strategy. Gold producers have the advantage Saylor never had: They produce the asset they would accumulate. The treasury strategy need not be funded by convertible-bond issuance; it can be funded simply by not selling a fraction of what is mined. It is the cheapest treasury strategy in the world – the capital outlay is an opportunity cost of deferred revenue recognition, not a capital raise.

It’s reasonable to expect that congestion and cost inflation can increase as more projects rush towards production. While margins are high, the balance sheets of producers have never been healthier. Holding onto gold and silver now might seem to be a higher-risk capital allocation decision, but selling all of your gold and silver to hold dollars also poses a significant and rarely discussed risk.

If holding 10% is seen as risky, then the risk of holding 90% of the balance sheet in an instrument that producers tell their investors to avoid like the plague deserves equal scrutiny. Increased dividends and buybacks are welcome and investor-friendly decisions. Allocating capital to holding bullion (or simply withholding bullion from current sale) should also be included in the conversation and would also likely be welcomed by a large group of investors. Companies can give investors more of the exposure that they want, lead the industry in supply discipline, and retain balance sheet flexibility.

Retail Enthusiasm, Institutional Skepticism

The shareholder reception to the bullion strategy at SilverCrest was notably bifurcated. Retail investors – many of whom buy mining shares precisely because they believe in gold as money – responded enthusiastically. SilverCrest’s approach aligned with their core conviction: Here, finally, was a company that practiced what the sector preached. The bullion strategy became a branding asset in itself, generating loyalty and advocacy that transcended conventional equity analysis.

As companies battle for superior cost of capital, adjusting the narrative to more effectively communicate with the enormous amount of capital that cares about inflation (but doesn’t know much or care about mining) will be core to a successful marketing strategy. The current marketing system is not set up to access this audience, though doing so offers a true opportunity to differentiate.

This divergence is revealing. It suggests that the bullion thesis resonates most powerfully with the very investors the mining sector most needs to attract and retain: long-term, conviction-driven holders who understand gold’s monetary properties. As Marty Neumeier writes in The Brand Flip: “Customers no longer buy brands. They join brands.” The retail investors who rallied behind SilverCrest were not passive shareholders; they were members of a tribe that shared a common monetary worldview, and their support built upon itself. Tesla is the textbook case. Owners who bought the car for its environmental credentials became members of a tribe; that tribe then extended its conviction from the car to the stock, turning shareholders into the brand’s most effective marketing arm.

The Austrian Perspective: Time Preference and Capital Theory

From the perspective of Austrian capital theory, the behavior of the mining industry can be characterized as pathological time preference. Producers act as though an ounce of gold will be worth less tomorrow than today – even though the opposite is true when measured in fiat purchasing power. They discount the future at a rate that would only be rational if the fiat money received in exchange were to preserve its value.

The rational capital allocation for a gold producer in an inflationary environment – and the current environment of fiscal dominance, shrinking tax bases, and structurally elevated inflation is precisely such an environment – consists in retaining a portion of production in the hardest available currency: its own product.

The Next Decade: Massive Cost Escalation

Data and experience would suggest that a decade of massive cost increases in mining is a risk that needs to be managed. This assessment aligns with several structural trends:

• Declining ore grades: Average gold grades at producing mines have been falling for decades. Lower grades mean more tonnes of rock, more energy, more water, and more chemicals per ounce – and consequently, higher costs per ounce.
• Increasing depth and complexity of development: The easy-to-reach deposits have been exhausted. New projects require deeper shafts, more remote locations, and more complex processing methods.
• Regulatory thickening: Permitting timelines for new mines have doubled or tripled in many jurisdictions. Longer permitting processes mean higher capital risk and higher financing costs.
• Energy cost volatility: Mining is energy-intensive. In an environment of geopolitical fragmentation and energy transition, stable and affordable energy supply chains and prices can no longer be taken for granted.
• Labor market tightness: The mining sector increasingly competes with other industries for skilled workers, particularly in remote regions.
• Resource nationalism and geopolitical fragmentation: Royalty hikes, windfall taxes, and outright shutdowns have become base case in many countries.
• Social license and ESG cost loading: Community consent and new disclosure rules have moved from reputational concerns to line items on the cost sheet.
• Tailings and legacy liability: Tougher tailings standards continue to drive up AISC. As of November 2025, only 67% of 836 ICMM member facilities were in full conformance with the Global Industry Standard, leaving one-third still investing toward compliance.

All these factors point in the same direction: the cost or risk of replacing an ounce sold today is rising faster than the general price level. This replacement cost logic tightens with every passing year.

The CFO’s Dilemma: Practical Obstacles

Intellectual elegance notwithstanding, the bullion retention thesis faces real-world obstacles that explain why adoption has remained limited. Any CFO considering this path will confront several challenges that deserve honest acknowledgment.

• Accounting ambiguity: Under IFRS, gold fits no standard classification – not financial instrument (IFRS 9), not investment property (IAS 40), and inventory treatment (IAS 2) requires intent to sell. Producers retaining gold enter an accounting grey zone requiring bespoke policies. The World Gold Council has long advocated for a common framework, but progress remains slow.
• Metric distortion: Sell-side analysts evaluate producers on standardized metrics – AISC, free cash flow yield, production growth. Gold on the balance sheet disrupts these models. A producer withholding 5 or 10% of output shows lower revenue, lower reported FCF, and potentially higher AISC per sold ounce – mechanically translating into lower target prices. Early adopters may pay a “complexity discount” until analytical frameworks evolve to treat bullion retention as value-accretive.
• Earnings volatility: Mark-to-market holdings introduce unrealized gains and losses unrelated to operations. For CFOs answering to quarterly-focused analysts, this can trigger covenant breaches and credit downgrades. Put options on treasury holdings offer one solution – insuring downside while preserving upside.
• Asymmetric perception risk: Treasury strategies carry asymmetric reputational exposure – when they work, investors shrug; when they fail, management faces intense scrutiny. This asymmetry biases risk-averse boards toward the status quo.
• Cash flow timing: Mining operations have relentless cash needs – payroll, energy, consumables, royalties, taxes. Retaining metal requires sufficient cash reserves or the discipline to time retention to periods of excess cash generation. For junior producers without SilverCrest’s enviable position – debt-free, high-margin – the liquidity calculus is less forgiving. A position must be established over time.
• The “buy it yourself” objection: If shareholders wanted pure gold exposure, they simply could buy it themselves. This objection has surface logic but misses the point. Shareholders cannot replicate the producer’s unique advantage of acquiring gold at production cost rather than market price, nor the supply-side impact of coordinated withholding.

These are real obstacles, not theoretical ones. But they are obstacles to execution, not to the fundamental principle. Every one of them admits a solution: bespoke accounting policies, investor education, phased implementation, cycle-aware retention strategies. The question is whether management teams – and boards – have the conviction to accept short-term friction in pursuit of a structurally superior capital management proposition.

However, this again presents an opportunity for differentiation, branding and community building. If industry players become advocates to fix this system to allow for better risk mitigation, then they can tap into the believers in gold who in turn become passionate brand advocates and champions of the strategy. As William Pollard states, “Those who initiate the change will have the better opportunity to manage the change that is inevitable.”

The Brand Flip: From Price Taker to Tribe Builder

The challenges outlined above are real but they miss a deeper strategic dimension. As Marty Neumeier argues in The Brand Flip: “A brand is not owned by the company, but by the customers who draw meaning from it.“ The mining industry has historically struggled to create a strong brand. It has commodities. It has ticker symbols. But it has failed to create meaning for its investors – the very investors who believe, more fervently than almost any other investor class, in the product they are financing. To be fair, this has much to do with the near irrelevance to which gold has been relegated since the 1970s in a “dollarized” economy. Now that this trend is clearly reversing, it requires consideration from corporate leaders who wish to be industry leaders.

Peter Drucker wrote that a business has only one valid purpose: to create a customer. And only two basic functions: innovation and marketing. The gold mining sector invests heavily in generating tangible value, but has allocated far fewer resources to improving intangible value – and thereby its cost of capital. The industry is investor-relations heavy but has made limited inroads in forming a narrative attractive to the 98% of the investing world that does not typically invest in mining. The bullion retention thesis is, at its core, a marketing innovation. It tells the investor: We believe in our product as much as you do. We are not just extractors; we are custodians of sound money.

Neumeier identifies a crucial shift: “Today’s customers want more than products, more than features, more than benefits, even more than experiences. They want meaning.” The gold investor tribe is driven by meaning – monetary sovereignty, protection against institutional failure, preservation of purchasing power across generations. Yet the companies that serve this tribe operate as though they were selling wheat or copper: undifferentiated, generic, competing solely on cost metrics.

The loyalty economics are compelling. Neumeier cites research showing that loyal customers spend 33% more than new customers, that a 5% increase in retention can mean a 30% increase in profits, and that emotionally connected customers are four times as likely to do business with a company. In the mining context, this translates directly to cost of capital: A producer with a loyal, conviction-driven shareholder base can issue equity at tighter discounts, weather volatility with less panic selling, and maintain higher trading multiples through cycles. As Peter Drucker noted: “The aim of marketing is to make selling superfluous.” For miners, the aim of holding bullion is to make the perpetual discount to NAV superfluous.

If the industry wants to put customers first, it must give them more of what they want – exposure to gold and silver – and less of what they do not want: pure mining risk returned in the form of depreciating fiat. Very few people invest in gold mining because they love the process of mining. They want the product, or as near as they can get to it. The company that internalizes this insight, and acts on it, does not merely improve its capital allocation. It flips its brand.

Conclusion: Dear Mining Industry, Take Your Own Product Seriously

The irony is exquisite: the innovation the gold mining sector most urgently needs is not better extraction technology or more efficient processing – it is to believe in its own product.

The arguments for retaining a portion of production on the balance sheet are multi-layered and mutually reinforcing: Across most cycles, true total costs can exceed the selling price for extended periods. Replacement costs are rising faster than inflation. Gold is the natural hedge against a miner’s own cost inflation. Ounces held above ground offer pure metal price leverage without operational risk. Supply discipline supports the price and thereby the margins of the entire industry. Holding fiat on your balance sheet is a short position on gold, a drag on valuation, and – so long as you believe central banks will continue printing – a material capital allocation risk in and of itself.

Naturally, there are practical objections: cash flow requirements, tax implications, accounting provisions, and analyst expectations for consistent sales volumes. But these objections concern the “how”, not the “whether” or the “why”. No reasonable observer would argue that a producer should withhold its entire production – yet the same logic should apply in reverse to holding 100% of treasury in fiat. 5–10% is not a radical proposition. It is the same allocation prudent investors have been advised to hold for decades, applied to the balance sheets of the companies that produce the asset in the first place.

The question is not whether gold producers should hold their metal. The question is why, for so long, they have not done so. The industry’s own product has functional utility across all aspects of its business, from improving the overall cost of capital to hedging fiat-currency treasury risks, to more effective marketing. The industry tells its investors to hold 5–10% of their net worth in gold and silver. If it truly means it, it should start by doing so itself.

Or, to borrow SilverCrest’s own motto: The product is the solution.