“It’s important to keep in mind that despite gold’s expense and the current cheap valuations of gold mining company stocks, gold miners are not a good substitute for physical gold from an asset allocation perspective,” he wrote at the iShares blog.
“First, while it’s true that miners and gold tend to be highly correlated, these are different asset classes. As a commodity, gold is diversifying to a portfolio. Second, over the long term, gold has been a much better inflation hedge,” Koesterich added. “Third, while many investors believe that miners are due for a spell of outperformance given their recent under performance versus the metal, miners have actually been trailing gold since 2003. Finally, real rates have historically had little to no impact on equity returns.”
The chart below is the ratio of the gold miner fund versus the gold bullion ETF. When the ratio is falling, it means miners are underperforming gold prices.
Full disclosure: Tom Lydon’s clients own GLD.