Why Are Gold Mining Stocks Lagging Behind?
In the time since the precious metal prices began to fall from their highs in 2011 and 2012, the gold mining sector has struggled to recover.
This is despite gold prices rising on an annual basis in 2016 and 2017, albeit modestly.
Gold gained roughly 14% last year and is up more than 1% so far in 2018.
By comparison, most stock indices are in negative territory year-to-date. Still, gold mining shares have lagged behind even when the stock market was up sharply each of the last two years.
A Loss of Confidence
Investors have been treating miners as risky bets due to their memory of the not-so-distant past.
They've gotten burned before: Some mining firms have lost three-quarters of their value since reaching all-time highs in 2012.
One would understandably be gun-shy if they bought shares in the big gold miners in the six years since. As a result, investor sentiment of the whole sector is rather poor right now.
Some mining companies, like Barrick Gold (ABX), have seen their stock prices fall 10% or more already in 2018.
There is also a relative lack of new major gold deposits being exploited. Production forecasts over the next several years are still dominated by existing mines. Once a new deposit is discovered, moreover, it can sometimes take five or even ten years to get a gold mining project up and running.
Light at the End of the Tunnel?
This may prove to be a bearish sign long-term for gold miners, according to the Wall Street Journal.
At the same time, a turnaround could slowly be taking place.
Some of the major gold miners (Barrick, Goldcorp, and Newmont Mining) have projects that will remain profitable as long as the gold price remains above $1,200 per ounce. Gold hasn't fallen below this level in about two years.
Retail investors may again be starting to trust miners with valuations this low. The popular VanEck Vectors Gold Miner ETF has seen inflows each of the last two months.
However, miners of other metals like copper and cobalt, which are far more heavily focused on industry, have fared better than their counterparts in the gold business.
It will take two things to dig mining companies out of their current hole (pun intended): a consistently rising gold price; and a return of investor confidence.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.
Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.