Gold miner exchange traded funds have lagged the price of bullion in 2011 and are poised to end the year with losses. Will 2012 be the year that miner stocks can finally close the performance gap with gold prices?
Many gold mining companies are expecting the price of gold to hit new highs in 2012. They are also busy raising dividends and looking for takeover deals that will help put them in a favorable position.
“In the face of substantial macroeconomic uncertainty and the threat of currency devaluation, gold has continued to increase in value,” wrote Abraham Ballin on Morningstar, in an analyst report. “Since March 1, 2009, the spot commodity has rallied nearly 80%. While the price performance of gold miners will certainly deviate from that of the physical commodity, an investment in GDX is a directional play on gold.”
Gold mining companies are looking at dividends as a way to compete for investors’ dollars since gold companies do not move in lockstep with gold prices, said Craig Wong for Winnipeg Free Press. Gold miners are also using dividends as a way to set them apart from other gold-focused investments, such as the gold holding SPDR Gold Shares (GLD).
“They’re very aware that there are a number of options of what we can call paper gold that investors can invest in rather than buying shares of mining companies,” John Gravelle, the Canadian mining leader at PwC, said. “Some are getting creative and looking at linking their dividend to increases in the gold price, so therefore you are getting a bit of a very direct return based on increases in the gold price.”
A recent study by PwC found that about 27% of gold mining companies paid dividends in 2011, compared to about 9% in 2010, said Wong.
Currently, gold is trading around $1,600 per ounce, after reaching a $1,900 high in September. A recent survey found that many investors and miner companies are still counting on gold reaching around $2,000 an ounce in the near future.
Gold miner ETFs include:
Market Vectors Gold Miners
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Tisha Guerrero contributed to this article.