With the third quarter’s earnings season now underway, the gold miners will soon join in and report their latest results. No data is more highly anticipated by investors, for good reason. Quarterly reports dispel the dense fogs of herd sentiment that usually obscure gold stocks, revealing their operations’ underlying fundamental realities. Q3’17’s upcoming results are likely to prove quite bullish for this neglected sector.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 45 calendar days after quarter-ends. The gold miners generally release their quarterly reports in the latter half of this span. So Q3’17’s will arrive between late October and mid-November.

After spending decades intensely studying and actively trading this contrarian sector, there’s no gold-stock data I look forward to more than the miners’ quarterly financial and operational reports. They offer a true and clear snapshot of what’s really going on, shattering the misconceptions bred by ever-shifting winds of sentiment. Nearly all fundamental analysis is based off the data gold miners provide in these reports.

So for many years I’ve delved deeply into gold miners’ quarterly results. They are the dominant source of information I use to winnow down the universe of gold stocks to the fundamentally-superior ones with the greatest upside potential. Every quarter after their latest earnings season ends, I research and write essays discussing the newest results from the major gold miners, junior gold miners, and silver miners.

Q3’17’s analyses are coming starting in mid-November, once that 45-day post-quarter reporting deadline has passed. But before that I eagerly dive into individual companies’ results as they’re reported, since there’s so much to digest. And even earlier right after a quarter ends, I start thinking about what gold miners’ latest quarterly results are likely to show collectively. They can actually be predicted to some extent!

In high-level fundamental terms, gold mining is a simple business. These companies painstakingly wrest gold from the bowels of the Earth, then generally sell all they can produce at prevailing market prices. So their profits are effectively the difference between current gold levels and operating costs. The former is easy to calculate once a quarter ends, and the latter can be fairly-accurately estimated for this sector as a whole.

Gold’s average closing price in Q3’17 was just under $1279, up 1.7% sequentially from Q2’17’s average near $1258. Higher gold prices portend better quarterly results, because gold-mining costs are largely fixed. They are mostly determined back when mines are being planned. That’s when engineers carefully decide which ore bodies to mine, how to dig to them, and how to process the resulting gold-bearing ore.

Quarter after quarter, generally the same numbers of employees, excavators, haul trucks, and mills are used regardless of prevailing gold prices. There are some variable costs like diesel fuel, but they are dwarfed by massive fixed costs. Thus higher gold prices flow right through directly to the miners’ bottom lines, boosting profits. And the relationship between gold’s gains and higher earnings is leveraged, not linear.

The major gold miners are all included in the leading GDX VanEck Vectors Gold Miners ETF, which is the world’s most-popular gold-stock investment vehicle. Every quarter I dig into the latest results from its top 34 component companies, which account for 90%+ of its total weighting. In Q2’17, these top GDX major gold miners reported average all-in sustaining costs of major gold miners. These AISC determine profits.

All-in sustaining costs include everything necessary to maintain and replenish operations at current gold-production levels. They include all direct and indirect cash costs of production, exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. AISC are the most-important gold-mining cost metric by far for investors to follow.

At Q2’s $1258 average gold price and $867 average major-gold-miner all-in sustaining costs, this sector was generating profits around $391 per ounce.  That’s pretty impressive, implying fat 31% profit margins most other industries would die for. Making the reasonable assumption that AISC will be pretty flat in Q3, its $1279 average gold price would yield profits of $412 per ounce. That’s up 5.4% quarter-on-quarter!

Potential 5.4% sequential gains in quarterly earnings in Q3’17 are big absolutely, probably better than the great majority of stock-market sectors. And 5.4% QoQ profits growth on a 1.7% QoQ gold rally makes for excellent 3.2x profits leverage to gold from the major gold miners. That’s the primary reason gold-mining stocks yield such massive gains in rising-gold-price environments. Their profits explode as gold rallies.