Even before the steep correction in gold and silver exchange traded funds this week, ETFs for miner stocks were trailing precious-metals prices.
When we see commodity prices shoot higher, we naturally expect commodity-producer ETFs to reap the benefits. However, as precious metals prices touch upon record highs, gold and silver miner ETFs continue to lag behind in performance.
Share prices of mining companies have been overshadowed by the prices of actual precious metals, reports Allen Sykora for Kitco.
Analysts and fund managers believe the stocks of the mining firms have underperformed because most investors would rather hold the actual metal itself and rising costs for mining companies are limiting profits despite higher prices for the precious metals.
Some analysts attribute the widening disparity in the performance between miners and the underlying precious metals to geopolitical and economic concerns that have pushed investors to hedge with physical metals. Daniel Brebner, head of metals research at Deutsche Bank, remarks, “when you buy gold through an ETF or direct, it’s not future. It’s now. A lot of investors are looking at risks much more immediate than five or 10 years away.”
Additionally, as basic commodity prices rise, mining expenses also rise. “The exposure that you get to the gold price is diluted through the equities because they are seeing that kind of cost inflation,” comments Brebner.
Agnico-Eagle Mines CEO Sean Boyd stated that miners will need to contemplate raising dividends to attract investors and improve their market values, reports Liezel Hill for Mining Weekly.
For more information on gold or silver, visit our precious metals category.
- Global X Silver Miners ETF (NYSEArca: SIL)
- Market Vectors Gold Miners ETF (NYSEArca: GDX)
- Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ)
Max Chen contributed to this article.