Via SchiffGold.com,
Gold Stocks vs. Bullion: Why the Lag?
You might think that the price of physical gold and the performance of gold mining stocks should more or less always move together, since higher gold prices typically boost miners’ revenues. However, there are instances—like now—where physical gold prices surge while gold mining stocks stay flat or even decline. There are a lot of reasons this can happen, but it sometimes represents a buying opportunity.
Take 2000-2011, which of course includes the 2008 financial crisis. The price of physical gold rocketed up over 500%, but gold mining equities returned almost 700% during the same decade. During bull markets, the cost of gold production rises slower than the value per ounce of bullion, which gold miners can leverage.
However, any number of market factors could cause a gold mining stock to underperform bullion in the shorter term despite a boom in bullion prices, but the lag usually doesn’t last. This isn’t to say that gold mining stocks are a replacement for physical gold in a portfolio. Unlike physical gold, they aren’t money—they’re stocks. But they’re inextricably linked to gold, and as part of a…
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