SHARES in Gold Fields have traded disappointingly so far this year, up barely 5% and only 13% higher in the past 12 months against record dollar gold pricing.

In this regard, they have traded a bit like their North American peers such as Barrick Gold and Newmont. Analysts say the improved gold price over the past two years has been quickly followed by mining cost inflation, which has narrowed margins.

“Valuations at current spot prices would indicate a level of market scepticism over the ability of companies to deliver expected margins at current gold prices,” said analysts at BMO Capital Markets in a recent report.

Mark Bristow, CEO of Barrick Gold acknowledges inflation has hit “all productive industries of which I include mining” relatively hard.

In the case of Barrick, Bristow has also had to deal with non-operating liabilities. “That has been my absolute obession. But in about two years our costs will come down rapidly,” he says.

Expensive merger and acquisition activity has also tended to blight gold shares. Bristow references the 2011 to 2015. “It was a time of mad value destruction,” he says – adding that many general investors haven’t forgotten it. If they return, they may only return to the largest of the gold producers where the risk is lowest.

Until now that hasn’t been in significant evidence. But that may be changing, especially as the gold price is tipped to remain elevated.

“Equities have been under a cost squeeze, which has eroded margins. I think we are near the end of that,” says George Cheveley, portfolio manager of asset manager Ninety One’s mining funds in London. “The latest gold price improvement has not been matched by inflation. But investors are wary,” he adds.

They are wary because historically the counters haven’t tended to allocate capital well. Cheveley thinks gold producers have come out much stronger as a result of the investment disaffection they have faced.

There is also a growing awareness that the gold price improvement is here to stay. Driven by dedollarisation in China, where its central bank has been aggressively buying gold, bullion has gained about 31% in three years and 65% over five years.

“The gold price has taken more than 10 years to move through the $2,000/oz level, but the market is not entirely sure it’s for real,” says Jim Rutherford, a former nonexecutive director of Anglo American and now a nonexecutive at Centamin, a UK-listed gold producer operating in Egypt. “Unappreciated,” he says of gold equities, adding that gold producers are far more disciplined than in the past.

Not all are convinced, especially with regard to South African shares — which may now have peaked and could be falling just as their North American counterparts, including Gold Fields and AngloGold Ashanti, head northwards – potentially.

“Our commodity strategist sees support for the gold price strength, premised on ongoing physical market demand, with an uptick in financial flows as we move towards rate cuts,” says RMB Morgan Stanley.

“However, South African gold producer all-in cost margins sit close to all-time highs, and, as we have previously highlighted, at this point in the cycle upward pressure on unit costs/capex often typically begins to offset additional margin upside.” South African stocks such as Harmony Gold “appear fair to fully priced”, the bank adds.

A version of this article first appeared in the Financial Mail.