"The performance of equities against bullion is not looking pretty at the moment," says Evy Hambro, who heads the natural-resources team at BlackRock, one of the world's biggest asset managers....Explanations vary. Some analysts believe gold-company investors were scared off by January's dive by gold. Others believe the underperformance reflects skepticism about gold's recovery. Still others believe that gold shares have suffered because they're equities. Yet another explanation is that profits have been impacted by mines in strong-currency countries, in which gold has rose more modestly over the years. Gold ETFs have drained away investment demand that would normally go to gold-mining companies. The overall prognosis is fairly gloomy.
The FTSE Gold Mines Index, which tracks all gold mining companies with a "sustainable and attributable" gold production of at least 300,000 ounces a year and derive 51% or more of their revenue from mined gold, is in positive territory—but only just. It is up 0.4% from the start of January, in large part because of a strong rally in the past week or so. At the start of the month, it was down 4%.
Interestingly, none of the analysts interviewed used the word "undervalued." They must be skeptical of gold's recent performance too.
I was unaware that even though gold valuation and gold production were increasing, gold shares were not doing as well. I wonder if there are any other reasons related to the crisis in Japan and Egypt as to why gold shares are not faring as well?
ReplyDeleteThe Japanese and Egyptian crises have little to do with it because no gold's being produced there. Company fortunes aren't affected.
ReplyDeleteThere's been a lot of concern about the gold shares because they've been lagging gold for some time now. Historically, that lag meant gold itself was due for a turn-down. This time, gold has kept going up.
It's a mystery. Myself, I believe that the skepticism about the miners is keeping them undervalued. If you're interested, the junior exploration companies have been hit hard in recent months.