Miners Underperform Gold and Silver in 2015: What’s Next?



Miners fall harder

As 2015 ends on a negative note for precious metals, gold and silver have experienced sharp falls of 9.5% and 9.0%, respectively, on a year-to-date basis.

Mining-based stocks that take their prices mostly from the prices of gold and silver have also seen falls. Individual stock-specific factors such as divestitures, dividend announcements, and mergers can also substantially impact mining companies.

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The upcoming year may provide some breathing room for mining-based companies. The surge in the US dollar against the major world currencies as the Fed lifts interest rates may give mining companies better revenue prospects, as precious metals are bought and sold in US dollars.

However, the expenses that these mining companies incur are all priced in local currency, which is comparatively depressed. Thus, higher-revenue, dollar-denominated figures and lower-expense, local-currency denominated figures give companies bigger margins.

Above is a chart that compares the price performance of gold (GLD) alongside South African mining companies Eldorado Gold (EGO), AngloGold Ashanti (AU), Gold Fields (GFI), and Sibanye Gold (SBGL).

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The South African rand has fallen about 24% against the US dollar, and the energy cost of oil, which is used in the exploration process, is also down. This has resulted in trailing-one-month gains of 4.5%, 13.5%, 20.1%, and 20.9%, respectively, for the above-mentioned South African mining companies. These stocks make up 14.7% of the VanEck Vectors Gold Miners ETF (GDX).

2016 may buoy miners

With most mining companies hitting bottom in 2015, hopes of a rebound in price remain high. Though the prospects of dollar-denominated gold remain bleak, the strength of the US dollar could give a revenue boost to miners. Also, investor interest in these mining-based companies may rebound. Most of them are trading below their 100-day moving average prices.


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