Rising Gold Prices Fail to Benefit Gold Mining Companies

February 21, 2013 | Tom Salemy, CFA, CAIA, Managing Director

This week’s Chart of the Week compares gold prices to the MSCI ACWI Select Gold Miners Index. Typically, most investors would expect gold mining company returns to closely track those of gold prices. Perhaps surprising is that our chart shows that since 2010, gold prices have increased 52% while the gold miners index is down 8% over the same time-period.

Theoretically, gold mining company and gold returns should be relatively similar. In reality, though, there are many factors that cause a divergence between the two prices. For example, many mining companies will hedge a portion of their underlying commodity exposures, thus causing their earnings to vary. In addition, there are large capital costs involved with mining gold which can prevent a company from realizing the full benefits of rising gold prices.

Despite the continued lag in performance, gold miners appear attractively priced with a forward P/E ratio of 9.591. However, this week’s chart illustrates that investing directly in the bullion is the only way to ensure investors receive pure exposure to gold’s returns.

MSCI

Tom Salemy, CFA, CAIA
Managing Director

Get to Know Tom

Related Content

10.22.2020

Will a Vaccine Be the End of COVID-19?

Simmering in the background of the presidential race and stimulus talks remains a crucial step towards fully re-opening the country:…

10.15.2020

ESG AUM Continues to Grow

Over the past five years, there has been a substantial increase in assets under management (“AUM”) for ESG (environmental, social,…

10.08.2020

Can Real Assets Help Protect Portfolios from Inflation?

Against the current backdrop of unprecedented monetary stimulus, investors have become increasingly wary of future inflation and its potential degenerative…

10.01.2020

EM: Less About “ME” and More About “IT”

In 2010, the emerging markets equity benchmark was all about “ME” as materials and energy constituted 28% of MSCI’s Emerging…

09.23.2020

The Year of SPACs

If there is one corner of the financial market that has benefited from the pandemic, it is special purpose acquisition…

09.16.2020

A Key Rebalancing Consideration: Drawdowns

In times of market turbulence, investments may sustain peak-to-trough declines known as drawdowns. The COVID-induced drawdown in March was no…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >