One of the most vexing conundrums investors have had to contend with over the past 12-18 months has been the performance of gold miners relative to the yellow metal itself. Yes, gold has acted more as a risk asset than safe haven in 2012, but until recently, it has been fair to say that gold has been in an unprecedented bull market for the better part of a decade, or longer.
Even with the recent weakness, the iShares Gold Trust (IAU) is still up about 6% in the past year. That adds to the confusion regarding the performance of gold mining stocks and ETFs. Take the example of the Market Vectors Gold Miners ETF (GDX).
With $8.23 billion in assets under management, GDX tracks large-cap gold miners such as Barrick Gold (ABX) and Goldcorp (GG). Home to 33 stocks, GDX came to market almost six years ago. Nothing has been golden about this ETF over the past year. In that time, GDX is down more than 26%. Over the past six months, the loss widens to 31%. In recent weeks, things have gotten worse as GDX has tumbled 9.3%.
Earlier this year as GDX and rival mining ETFs were faltering, some analysts and traders speculated that capitulation was near, meaning that the bears had finally had enough and the selling pressure would soon abate. For GDX, that was more than 10% ago.
GDX has touched new 52-week lows in the past two trading sessions and now the ETF is found just 5% above its $40 debut price. Put another way if you had held GDX, a high beta fund if ever there was one, for six years, you'd be up 5%. In the past five years, IAU has surged almost 130%.
Making the case of the miners even more curious is that neither the companies nor the analysts that track them seem to be able to offer up any legitimate reason for why these stocks have lagged gold so dramatically over the past few years. Sure, the price of mining gold has increased, but that should be covered by higher prices for the commodity itself.
Perhaps the best thing that can be said of gold miners at this point is that there have been other periods in history where the group has lagged gold futures. Then the situation reverse and the miners outperformed the bullion. Encouraging for the bulls to be sure, but without a crystal ball, no one knows exactly when miners will get its act together. And that might just mean the best mining security to own at this point is the ultra-risky Direxion Daily Gold Miners 3X Bear Shares (DUST).