Thursday , 25 July 2024

Own Gold Instead Of Gold Mining Stocks – Here’s Why

When will people wake up to the fact that investing in gold mining shares is not a good idea?  For the life of me I just don’t understand what the supposed experts are seeing and thinking when they talk about the “positive outlook for mining shares” and, as far as gold stocks outperforming gold, well, just forget about it. Here’s why.


This version of the original article, by Kelsey Williams, has been edited* here by for length (…) and clarity ([ ]) to provide a fast & easy read.  For the latest – and most informative – financial articles sign up (in the top right corner) for your FREE bi-weekly Market Intelligence Report newsletter (see sample here)

The XAU-to-Gold Ratio

Below is a chart depicting the XAU-to-gold ratio over the past 35 years. For the first 25 years, from 1983 to 2008, the ratio pretty much stayed within a range of .20 to .35 but, after that, the bottom fell out.

What is ironic, is that while gold’s price was rising strongly from its low of $260.00 to its eventual high of nearly $1900.00, the ratio was dropping – from .30 to .11. So much for the leveraged advantage of gold mining shares over gold bullion. Adding insult to injury, mining shares did worse than…gold bullion on the downside, with the ratio dropping to .04 in January 2016.

The HUI-to-Gold Ratio

Lest someone think that the XAU is not broadly representative of the gold mining sector, I have included a chart of the HUI-to-gold ratio below:

The HUI-to-gold ratio chart covers a shorter period (22 years) than the previous chart, and there are differences in the scope and timing of trends and price points in the two ratios. For example,

  • the XAU-to-gold ratio peaked in May 1996, whereas, the HUI-to-gold ratio peaked in November 2003. Also, the XAU index is comprised of more traditional mining companies.
  • The HUI index has more of the newer, more speculative companies, and is more broadly based.

Allowing for those differences, however, the patterns and impressions are similar. is being given away – check it out!

Here are both charts in the same order, but both showing only the past 20 year history:

Not a pretty picture if you own gold stocks instead of gold bullion. Gold stocks have underperformed relative to gold, and woefully underperformed according to expectations – and it isn’t getting any better.

  • Gold stocks have declined more than twice as much as gold since their respective peaks in 2011.
  • Most gold stocks today are priced about where they were in 2003, when the HUI-to-gold ratio peaked.  Yet gold, since 2003, is up nearly 200%.
  • Except for one, brief period from 1999 to mid-2003, price action in gold stocks relative to gold is a disappointment, at best.

After November 2003 anyone would have been better off holding gold, itself, rather than the gold stocks. And with a lot less risk.

(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.}

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