While gold miner stocks and sector-related exchange traded funds look cheap after underperforming broader equities for years, some caution investors against betting too heavily on this area of the market as the sector rallies on strengthening bullion prices.

“We believe that gold miners are a value trap for now,” ETF Securities’ James Butterfill, Head of Research and Investment Strategist, and Aneeka Gupta, Associate Equity and Commodities Strategist, said in a research note.

Gold miners currently trade at about a 59% discount to gold prices since 2009, have a price-to-book value of 1.0x and an average dividend yield of 2.8%, which makes the sector look attractive from a valuation standpoint.

For instance, the Market Vectors Gold Miners ETF (NYSEArca: GDX), the largest and most heavily traded gold miners ETF, is trading at a 0.8 price-to-book.

ETF Securities argues that gold miners don’t offer the best value in the mining space – miners have an average P/B of 0.69 and an average dividend yield of 5.5%.

A value trap refers to a cheap security that has been trading at low multiples of earnings, cash flow or book value for an extended period of time. Investors are attracted to the bargain pick, but the trap occurs when the stocks never improve. If a security exhibits low multiples for an extended period, the indicator may suggest that the company or sector is in trouble.

Moreover, the strategists point out that costs keep rising, which has narrowed profit margins among gold miners. Recent mine closures have not improved margins. Current mining operations are also facing deteriorating ore grades. The recent decline in energy prices and depreciating currencies where local miners operate have also had minimal beneficial impact on cash costs.

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