Gold stocks have not kept pace with the surging price of gold and inflationary pressures are to blame, according to one prominent gold executive.

Over the past 12 months, the spot price of gold has risen 0.79 per cent as of 6:15pm ET on Friday, outpacing some of Canada’s biggest gold miners including Barrick Gold Corp., Kinross Gold Corp. and Agnico Eagle Mines Ltd, all of which posted double-digit declines in their share prices over that same time period.

“I have one word for you. It’s inflation,” David Garofalo, chief executive officer of Gold Royalty Corp., said in an interview Friday.

Garofalo is a well-known name in the gold industry. As the former chief executive of Goldcorp, he helped carry the company through a takeover by Newmont Mining Corp. in 2019, later leaving the company after the deal was completed.

“There have already been some significant capital cost blowups on the operating side. As for some of the few companies that are actually out there building mines, they’re seeing significant escalation of those capital costs, but we've seen across-the-board input cost inflation,” he said.

Like the broader economy, the mining sector has struggled with supply chain disruptions and finding skilled workers.

Garofalo, who joined Gold Royalty in Aug. 2020, said part of the reason he moved to the royalty interest side of the industry is because it provides revenue growth without having to worry about inflation.

“After 32 years of actually building and operating mines, in my various roles in my career, I position myself in the royalty business because the royalty business offers you the best of all worlds,” he said.

“We're not concerned about cost of the mine site because our revenue comes entirely from the top line of the mine site. We also have, obviously, the exposure to exploration success. So if the underlying operators are successful and growing their deposits geologically, we have percentage of that upside and our royalties as well.”

During periods of high inflation, the price of gold tends to do well since has a reputation of being an inflation hedge. Garofalo predicts this current cycle will prove to be very beneficial to the commodity price-wise.

“I actually think the commodity is going to do extremely well. I'm calling for US$3,000 [per ounce] gold in this cycle,” he said. “Imminently, I think there's going to be a wave of sentiment and capital going into gold, as inflation continues to rear its ugly head and continues to accelerate much like it did in the late 1970s and early 1980s.”