Miners Miss Out on the Golden Age
April 18, 2013 Leave a comment
April 17, 2013, 1:58 p.m. ET
Miners Miss Out on the Golden Age
By LIAM DENNING
For gold miners, the past five years should have been similar to what tech companies experienced in the late 1990s. Back then, the Internet promised a brighter tomorrow; in recent years, it felt more like there might not be one at all. Such fear suits gold, and it is still up 45% over five years, despite the recent slide. Not so the gold miners, who supposedly offer leveraged exposure to price moves. The Philadelphia Gold & Silver index, down by almost half on a five-year view, is now back to where it was in December 2008. In other words, four years or so of subsequent gold fever may as well have not happened.
Worse, for those who bought the sector five years ago, the highest gain was 19% if they sold at the index’s April 2011 high point. With gold itself, investors could have doubled their money if they sold in September of that year.
One problem is proliferating exchange-traded funds making it easier to gain direct exposure to gold. This negates needing to own the miners themselves, where cost inflation and ill-considered acquisitions have squeezed margins and cash flow. Meanwhile, gold ETFs, so supportive on the way up, now represents a hot-money overhang. At the end of 2012, they held metal equivalent to 90% of annual mine supply, according to HSBC HSBA.LN -0.97% .
Miners’ costs, already squeezing margins, can’t be scaled back as quickly as an ETF portfolio, so falling gold prices hurt. All of which suggests that, having enjoyed little positive leverage to the most favorable environment for gold in a generation, the miners will provide a hefty dose of negative leverage as gold’s popularity wanes.
Makes you wonder why own these stocks at all. At least when the tech bubble burst, we still had the Internet.
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