Gold miner stocks are underperforming bullion prices to a degree seldom seen in the past three decades. Essentially, the spread between gold miner shares and spot gold prices is near a 30-year low.
Gold has been stifled over the last two months and even dropped below its $1,600 threshold, with miner stocks and exchange traded funds closely mirroring the movements. However, miners surged Wednesday on heavy volume, lifting hopes that producers may finally catch up to the record run in precious metals.
Market Vectors Gold Miners (NYSEArca: GDX) and Market Vectors Junior Gold Miners (NYSEArca: GDXJ) both gained over 3% on Wednesday. However, both funds are still down about 16% year-to-date and ended last week in negative territory. [Gold Miner ETFs Bounce on Heavy Volume]
Gold futures currently sit around $1,580 per ounce. The spot price recently broke below its long-term support lines.
On Morningstar, mining and metals analyst Joung Park notes that gold miners have underperformed the physical metal as demand from physically-backed ETFs, jewelry and central banks lifted gold prices to new heights.
In contrast, gold-mining shares have actually declined 16% over the past year.
“We think that there are a number of reasons for this, but the main thing is that investors are putting their money into gold rather than into gold-mining shares because the mining shares have additional risks such as higher-than-expected production costs, geopolitical risks, and issues with operating the mines themselves,” Park said.
Park, though, believes that dividend payouts, which some companies are beginning to implement, and the current low valuations could help bridge the gap.
For more information on gold producers, visit our gold miners category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.