Lack of interest, misguided cost concerns fueling gold equity underperformance
Gold equities outperformed gold bullion in March, as the NYSE Arca Gold Miners Index (GDMNTR)1 gained 2.9%, while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 advanced 2.2%. Perhaps gold stocks have begun to claw back the performance they have lost relative to gold this year. In the first quarter, gold equities underperformed gold by 7.2%, while junior miners underperformed by 7.8%. We normally expect gold equities to advance with gold, which has gained 1.7% so far this year.
1NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold.
2MVIS® Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Gold equities trending downward
Though precious metal equities outperformed gold bullion in March, they underperformed gold over the last two years. While gold was up 5% over the past two years, the NYSE Arca Gold Miners Index gained just 2%, and the MVIS Global Junior Gold Miners Index rose 4%. Some of the top global gold-mining stocks, Barrick Gold (ABX), Goldcorp (GG), and Kinross Gold Corporation (KGC) are trading 16.9%, 15.2% and 15.6% lower, respectively.
A sign of better times ahead?
In the first quarter of 2018, gold bullion posted a moderate gain of 0.7%, ending the quarter at $1,327.30 per ounce. While the sentiment toward gold has improved moderately, sentiment for gold equities remained outright bearish. On the one hand, it’s a concern that gold equities remained in the doldrums despite gold inching up gradually over the years. On the other hand, it could be a positive sign for long-term gold equity investors because any shift in sentiment toward gold as a safe-haven investment could lead to robust gains. Currently, gold equities (GDX)(GLD) are trading at much cheaper valuations while gold bullion has appreciated in price.