Wednesday , 17 April 2024

How Have Gold/Silver Mining Stocks Performed Compared To Gold Over Past 20 Years?

…To protect one’s wealth against risks…one must own physical gold…Acquiring gold mining shares…[instead]would be a mistake. [This article proves that contention]. 

The original article has been edited here for length (…) and clarity ([ ]). For the latest – and most informative – financial articles sign up (in the top right corner) for your FREE tri-weekly Market Intelligence Report newsletter (see sample here)

The two main benchmark indices for miners globally are the Philadelphia Gold and Silver Index (XAU) and the NYSE Arca Gold Bugs Index (HUI).

  • The former is an index that measures the performance of gold mining companies listed on the Philadelphia Stock Exchange.
  • The latter measures the performance of companies listed on the New York American Stock Exchange.

Without getting into details [other than that the XAU has a greater number of silver/copper miners,] let’s just say that those two indices share many miners and are calculated quite differently.

[Below is a comparison of the performance of physical gold, the HUI and the XAU in U.S. dollars over the last 20 years (10/1997 – 05/2018)]:


As you can see, for the whole 1997-2018 period, the value of the ounce of gold has been multiplied almost by four, whereas the miners indices only show a 13% performance for the HUI and -25% for the XAU. At its September 2011 peak, [a troy]…ounce of gold in US dollars had gained 450%…[from] the end of 1997, whereas the HUI “only” gained 300%, while the XAU gained a little over 80%….[Moreover,] a saver who…[had bought] gold at its peak…in September, 2011 would only have seen…[its] value…decline by 20%, whereas an equivalent position on the XAU would have lost more than half.

(Source : ProRealTime)

That certainly puts into question the famous “leverage” associated with the miners, doesn’t it?

…[While] over the long term, mining stocks prices do correlate with [gold]…the miners come with a much more exacerbated volatility than…physical gold. Miners…globally outperformed [gold] from 2001 to 2008…[after which] they brutally dropped…[only to] pick up from 2009 to 2011 before plunging again to the same level they were at fifteen years…[previously]!

To sum up, one would have had to own a portfolio of very well chosen stocks to outperform physical gold over time…Today, investing in gold mining companies calls for more frequent changes in positioning…Gold mining shares cannot be put on the same scale as physical gold (not be confounded with “paper gold”) which is the only gold asset that constitutes real wealth insurance.

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