Gold is considered by many to both a potential stock market and currency hedge, pointing to global money printing and expanding sovereign debt loads as reasons for individuals to maintain personal reserves. Another option some gold bugs may consider is investing in gold miners.
At the moment, several large-cap miners provide a dividend that beats the average interest rate available on a savings account, and possibly even a 5-year CD. Of course, many of those dividends only became so competitive due to declining share prices over the last few quarters.
Over the last several years, gold appreciated to a substantially greater degree than did the majority of gold miners. Much of the disconnect between gold and gold producers is related to broad expectations that gold would not maintain its recent price range. Moreover, throughout 2011 and so far into 2012, the gold miners have consistently underperformed gold when it appreciates, and fallen more significantly than gold when it depreciates.
Below are five large-cap gold miners traded in the United States: Barrick Gold (ABX), Goldcorp. (GG), Newmont (NEM), AngloGold Ashanti (AU) and Yamana Gold (AUY). I have provided their present yields, as well as their 1-month, YTD and 6-month equity performance rates. I have also provided the performance rates for gold via the Gold ETF (GLD).
(Click to enlarge)
And below is a 2012-to-date performance comparison chart for gold and the five above-listed miners:
Over all the above-listed time periods, gold outperformed the average of these miners, but several have outperformed gold on an individual basis over the last month. The notable weak equity over the last month is Goldcorp, which recently fell after missing earnings estimates. Nonetheless, thus far into 2012, gold is essentially flat, while the miners have depreciated by an average of 7.01%. Some anticipate that this miner's underperformance should eventually catch up to gold, provided gold does not decline.
Notable differences between miners and gold exist, including that mining companies may suffer risks that a commodity investment cannot, such as political risks, mine productivity issues, bad weather, management negligence, fraud and bad luck. Mines can be shut down by hostile governments, bad weather, an earthquake and many other foreseeable and risks. Such issues regularly present themselves, which partially accounts for the average miner's underperformance.
Another notable difference between shares in these miners and shares in the gold ETF is that these large miners provide a dividend that probably beats the interest rate most individuals are getting on cash. The above-listed gold miners all yield over 1.4%, with an average yield of 2.08%. Gold does not provide a yield, and also usually requires investors to pay storage costs, or management fees in the case of an ETF.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.