Over the last two years, gold has appreciated to a far greater degree than have the gold miners, largely based upon a broad expectation that the price of gold could not sustain its momentum and price range. Though gold has come down from its summer high, gold has still dramatically outperformed the large miners over the recent past.
So far in 2011, gold has appreciated over 16% while the large miners have broadly depreciated. See the 2011-to-date comparison chart of the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and the SPDR Gold Trust (NYSEARCA:GLD).
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As the chart above indicates, the gold and gold miners ETFs traded closely during the first quarter of 2011 with a greater and continuing divergence emerging during the second quarter.
Despite gold's significant outperformance during the second quarter, gold and gold miner performance became far more closely correlated during the second half of the year, as gold peaked and then began to correct downward. See the six month comparison below.
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Below are seven large-cap gold miners that are traded in the United States: Barrick Gold (NYSE:ABX), Goldcrop. (NYSE:GG), Newmont (NYSE:NEM), Kinross (NYSE:KGC), AngloGold Ashanti (NYSE:AU), Yamana Gold (NYSE:AUY) and Agnico-Eagle Mines (NYSE:AEM). I have provided their present yields, as well as their one-month, six-month and 2011-to-date performance rates. I have also provided the performance rates for gold.
As the performance rates indicate, gold and gold miner depreciation was comparable over the last month, but the metal significantly outperformed the miners over the six-month and full year time frames.
These companies suffer risks that a pure commodity will not, such as political risks, mine productivity, distribution costs, management negligence and fraud. As the performance data show, recent miner performance has varied dramatically from company to company, with gold consistently beating the majority.
These large miners do provide a dividend, while gold does not and often requires a storage cost. If rising gold prices continue, then the miners should eventually follow that rise and undergo an upside correction.
Given the significant disconnect between current gold prices and gold miner valuations, it is possible that these miners could eventually start to increase in share price even if gold merely stabilized. Nonetheless, if gold should continue to move downward the miners may depreciate accordingly, and possibly even to a leveraged extent.
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.