As the saying goes, "With the sound of gunfire, ten thousand taels of gold". Driven by geopolitical tensions and safe haven sentiment triggered by the US debt crisis, gold prices briefly broke the $2000/ounce mark in late October. However, for US stock investors, it is not easy to find a corresponding mapping at the stock market level against the backdrop of the sharp rise in gold prices - because the performance of gold mining stocks has always been unsatisfactory!
This can be clearly seen from the trend difference between the ETF prices linked to gold and the ETF prices tracking the performance of gold mining stocks. And many investors are currently working hard to find the reasons behind the difference in performance between the two.
A comparison shows that the SPDR Gold Shares ETF, which tracks gold prices, has risen 9.82% so far this year due to concerns about inflation and economic growth, as well as geopolitical turmoil. However, these gains were not reflected in the stock prices of gold miners: iShares MSCI global gold mining stock ETF, which tracks gold producer stocks, and VanEck gold miner ETF, which rose only 2.28% and 1.7% respectively during the year.
According to VettaFi's data, the correlation coefficient between gold prices and gold miners' stock prices this year is only 0.6, lower than the historical average of 0.8. 1 indicates a completely positive correlation between the two, while 0 indicates no relationship at all.
Imaru Casanova, portfolio manager for VanEck's gold and precious metals investment strategy, said, "People's interest in gold has not translated into interest in companies that actually produce gold. This is puzzling and we are scratching our heads
What exactly is the reason?
Casanova believes that one of the reasons for this disagreement may be the frenzied buying of gold by global central banks over the years. According to data from the World Gold Council, global central banks purchased over 1100 tons of gold last year, setting a record for the largest purchase since 1950, driving gold prices to an 11 year high in 2022.
Despite a decrease in central bank purchases in the third quarter, the World Gold Council still expects purchases in 2023 to be close to last year's levels.
In contrast, insufficient production has put pressure on the profits of some gold miners and also harmed their stock price performance, "said Roxanna Islam, Deputy Director of Research at VettaFi
Islam pointed out, "If you can't produce more gold from the beginning, then the rise in gold prices can only provide this help
One example is that gold producer Newmont Corp. has a weight of nearly 16% in the iShares gold mining stock ETF. The company's Penasquito mine in Mexico has just resolved the strike issue, and production this year may be lower than analysts' expectations.
Other factors have also suppressed the production prospects. George Milling Stanley, Chief Gold Strategist at State Street Global Advisors, said, "Gold mining companies spend a lot on exploration and production, but they are almost unable to maintain their current production levels
Even Barrick Gold, which saw a 3% increase in gold production in the third quarter, stated that overall production in 2023 will not meet expectations. The company's current annual production is hovering around half of the peak of 8.64 million ounces in 2006.
Both Newmont and Barrick have seen their stock prices decline so far this year.
In addition, despite the recent rebound in the broader market, the S&P 500 index is still about 5% below its high in July, which has also put pressure on gold miners' stocks.
Casanova pointed out, "Investors as a whole seem to be very cautious about the stock market, and gold miners have been tracking this, rather than the situation of gold prices themselves