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

07.28.2020

Bond Downgrades Subsiding

As a key indicator that we have come a long way from the late-March panic and that both the economy…

07.24.2020

Mounting Bankruptcies Reflect New Consumption Patterns

COVID-19 has caused a slew of bankruptcies across multiple industries as companies struggle to meet their cash needs. Re-openings might…

07.15.2020

Coastal COVID: Diverging State Responses

Nearly a month into summer, the tragedy of COVID-19 rages on globally and in the U.S. As of July 13th,…

07.09.2020

Best Historical Performing Asset Class Is on Sale!

It is critical for institutional investors to understand the importance of both relative and absolute value when considering investment allocations….

07.01.2020

Russell Rebalance: What Happened?

Summer has arrived and with it comes the annual “Russell Rebalance,” or as FTSE Russell — the index administrator —…

06.24.2020

Private Equity in Times of Crisis

While there is still much uncertainty around the long-term economic ramifications of COVID-19, financial markets have been undergoing frequent massive…

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 >