In recent years, however, markets have witnessed a visible separation in the performance between the price of gold and broad gold mining indices (Exhibit 1).

This dislocation is reflective of the challenges facing gold miners since the 2008 financial crisis separate from the price of gold. It underpins a critical theme that gold miners, while indirectly linked to gold through production, are not a pure play on gold.

Unlike gold, historically gold miners have served as ineffective hedges against tail event risk and large market drawdowns.

Gold miners look like gold but act like equity

While gold miners are valid investments, they are an investment in equity not gold. Investors should view gold miners as distinct from gold allocations within portfolios in order to benefit from gold’s unique investment and risk management characteristics.

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