Gold bugs are
a generally happy bunch this week. But they'd be a lot happier if precious
metals mining stocks kept up with the metals themselves. Since early 2011 the
largest gold miners have underperformed gold by about 40%, while the junior
miners have done even worse (I'm talking to you, Great Basin).
this divergence between the metals and the miners, it was possible to clearly
understand the monetary destruction endemic in the developed world, conclude
that gold and silver were the places to be, make a decisive bet on this
thesis -- and still end up losing money.
There are two
possible conclusions to draw from this: Either mining as a business has
changed fundamentally and will be unprofitable forever - in which case we
should just own physical metal and forget about paper proxies. Or the past
couple of years were one of those inexplicable divergences from established
relationships that produce huge gains when they snap back to normal.
month has offered a taste of what the second possibility might look like. The
chart below shows that the big miners (represented by the GDX gold miner ETF,
red line) have outperformed gold itself (the GLD bullion ETF, blue area)
since July. But the two-year gap, like I said, is about 40%, so parity is
still a long way off.
Now that the
miners have some momentum, it wouldn't be surprising if they made up this
ground in no time at all.
(red line) versus Gold (blue) since mid-June