Over the past year, the price of physical gold has shot through the roof, but the stocks of gold producers have lagged the metal's price. That much has been well documented.
But with the latest spike in the price of gold, there was hope that the producers, too, would jump much higher. Sadly for frustrated management teams, that surge hasn't transpired. Early Tuesday morning, gold was sitting north of $1,700 (U.S.) per ounce. That's about a 14-per-cent rise since mid-June. This time frame has been used because it's when the S&P/TSX Gold Index hit a near-term low. Since this time, the index is up only about 8 per cent.
However, the results are much more interesting when you dig into the individual member returns.
Some names have performed well, such as Yamana Gold Corp. , which is up about 13 per cent in the past month. Others have been mixed. Barrick Gold Corp. is up at 3.5 per cent in the past month, while Newmont Mining is basically flat.
Then there are some losers. Goldcorp and Kinross Gold Corp. are both down around 4 per cent each over the past month.
The frustration isn't reserved for the big name producers. Smaller player New Gold is basically flat over the past month, while Claude Resources CRJ-T is down about 25 per cent.
Why are these stocks still lagging? For now, it appears the same forces are at play: There has been a broad multiple contraction in the sector; gold ETFs have been buying gold bullion at rapid rates, which sends the price of gold much higher; and production cost inflation dogs the producers. But just because these factors can be explained doesn't make the situtation any more comforting.
(Note: all returns were calculated before the market opened on Tuesday.)
Tim Kiladze