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What’s better to own, the commodity gold, or equities with gold mining exposure? I noticed that Wednesday’s trading had some gold stocks that were perking up. I remember back in 1989 when I first ran across gold and the Canadian miner Echo Bay Mines (ECO). I think the stock was around 15 at the time, traded on the AMEX, and gold the commodity was around $400 per ounce. I distinctly remember ECO would go in lock step with the commodity. What was interesting is that many gold stocks back then were very speculative as many did not have revenues or earnings.

Gold stocks lag

From 1989 to 2002 gold did nothing. But from around 2002 to 2009 it has been on an amazing run, going from about $300 to $1,200. But what have gold stocks done during that time? If they have underperformed perhaps there might be room for catch up? As I began to dig into the gold stocks, my gut told me that the gold stocks have lagged. I remember the common thinking over the years about gold – if a gold miner could maintain its costs reasonably well, and if the price moved higher even only incrementally, the earnings power of a gold miner would soar. If that happened, the stock price would also follow.

Following that logic, I decided to look at the 3 year period ending March 3rd 2010. I would compare gold to gold stocks. For gold, I would use the ETF, GLD as the gold price barometer and then compare that to the performance of gold stocks. On March 3rd 2007, GLD was at $72.28 (each ETF unit equals 1/10th of an ounce of gold, putting gold at about $723 / ounce).

How about gold stocks during that period, how did they perform? To find out, I used Yahoo screener screening for gold stocks. I then pared down the list for stocks that were priced above $1 per share. There are a total of 40 stocks whose total market caps = $190 billion. The average stock returned 36%, underperforming the 55% return of GLD.

Interesting to look at two of the top two share performers, Exeter Resources (NYSEMKT:XRA) and Rubicon Minerals (NYSEMKT:RBY). These two returned well over 200% over the three years but have no trailing twelve month revenues. Gold stocks tend to move more on potential than actual revenues and earnings. What’s also interesting to note is only 13 stocks outperformed GLD and 24 underperformed GLD. Three did not have share prices three years ago to compare so they were dropped to the bottom of the list. Twenty of the stocks had a trailing PE, even with the 55% spike in the GLD. Twenty five of the stocks had trailing revenues. This seems to show that gold mining is still a very tough business. One last interesting nugget of information is that most of the miners were from Canada.

The list is below. Please note that I ranked the stocks on the list from best performers to worst performers and also categorized a stock as an outperformer if it gained more than the 55% that GLD gained over those 3 years. Will gold miners catch up to the GLD or even exceeed the return of the GLD? That is for the investor/speculator to figure out but there definitely seems to be a performance disparity:

SymbolPrice Price% chPerformanceMarket CapRevsRevPE
3/3/20073/3/2010vs GLD($ Billions)(TTM $B)Growth %
GLD72.28112.1155.11-----
XRA1.788.65385.96outperformed0.546---
RBY1.314.61251.91outperformed0.978---
BVN12.9834.17163.25outperformed8.60.7861123
EGO5.6213.34137.37outperformed5.340.2792230
CGC-OLD1.683.53110.12outperformed0.1710.0452815
IAG7.6715.64103.91outperformed5.760.9142749
EGI1.442.7993.75outperformed0.267---
JAG5.4410.3790.63outperformed0.8240.1293642
RIC2.394.1473.22outperformed0.1080.0731648
AEM36.3861.3568.64outperformed9.610.614208112
GG24.8640.3462.27outperformed29.562.552526
SA14.6222.9857.18outperformed0.864--91
RGLD30.3847.4156.06outperformed20.10413866
KGC12.7919.2450.43underperformed13.392.414443
ABX27.640.3846.30underperformed39.758.1412-
NSU1.92.5232.63underperformed0.353---
AZK3.44.3427.65underperformed0.690.1612431
NEM41.9552.3724.84underperformed25.676.595033
NAK9.969.92-0.40underperformed0.923---
GSS3.683.37-8.42underperformed0.8670.4016948
AU41.6638.03-8.71underperformed13.9248-
DROOY7.16.47-8.87underperformed0.2460.247567
NXG3.322.91-12.35underperformed0.8455112120
GBG2.011.75-12.94underperformed0.5820.048--
AUY13.5211.17-17.38underperformed8.180.9785024
TRE5.194.21-18.88underperformed0.384---
GFI15.9912.31-23.01underperformed8.684.131419
HMY13.3110-24.87underperformed4.261.21-650
KBX1.621.12-30.86underperformed0.07---
CDY1.931.33-31.09underperformed0.078---
CGR1.531.04-32.03underperformed0.1160.04416-
GRS1610.17-36.44underperformed1.390.187-163
UXG4.522.81-37.83underperformed0.343--
XPL3.652.12-41.92underperformed0.063---
NG16.36.07-62.76underperformed1.140.001-54-
VGZ7.542.15-71.49underperformed0.96---
GRZ4.21.11-73.57underperformed0.65---
ANV-14.78--1.090.27--
THM-6.93--0.415---
KGN-5.95--0.266---
averagereturn =36.15total market cap =189.949

Authored by Tom Henderson, Strategist JBH Capital.

Disclosure: No disclosures.

Source: What's Better: Gold, Gold Stocks or Gold Miners?