Over the last few weeks, most large gold miners first declined substantially and sharply, significantly underperforming both the broader equity markets and gold itself, but the majority of miners have since snapped back and made impressive gains over the last week alone.
Over the last several years, gold gained substantially while many gold miners did not. Despite its prior underperformance, throughout 2011 and into 2012, the vast majority of gold miners consistently underperformed gold when it appreciated, and fell more significantly than gold when it declined.
Recently, though, the miners experienced a sharp snap back that indicated some investors are now more comfortable with gold miner investments than they are with gold investments. One reason for this may be that these miners provide yield. 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 10-year treasury. Of course, many gold miner dividends only became so competitive due to declining miner share prices over the last few quarters.
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).
For a while, many investors have argued that gold miner underperformance should eventually catch up to gold, provided gold does not decline. It is possible that we are now entering that catch-up period. Over the last month, gold miners have appreciated by 11.7 percent, compared with a 1.46 percent decline for gold. This compares with significant prior underperformance by the miners within 2012.
On average, these miners declined by an average of 8.03 percent since the start of 2012, compared with gold appreciating 3.39 percent so far this year. See a year-to-date comparison chart for the Gold ETF and the Large Cap Gold Miner ETF (GDX):
This compares with the recent outperformance by the miner ETF over the last few weeks. See the three-week comparison chart, below:
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. The above-listed gold miners all yield at least one percent. Gold does not provide any yield, and generally requires holders to pay storage costs or management fees.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.