Gold has been among the best investments in 2011.
Shares of gold miners? Among the worst.
Gold is up 12% this year but shares of gold miners have fallen almost 16%. Smaller gold miners are down almost 40%, based on the returns of leading exchange-traded funds tracking those stocks.
The surprising gulf has caused pain for some of the biggest names on Wall Street—including John Paulson, George Soros, David Einhorn, Seth Klarman and Thomas Kaplan—many of whom piled into gold shares over the past year, sometimes by shifting away from gold itself.
Bulls figured that gold miners had more upside than gold, partly because mining stocks outperformed during past bull markets for the metal.
But this year, gold miners have been hit by concerns that haven’t tarnished gold prices. Investors have worried that mining costs are rising, and that governments around the world are becoming more aggressive in taxing resources companies. They’re also concerned that gold miners might squander any windfall with ill-conceived acquisitions or other moves.
Plus, in a turbulent year, gold shares have suffered along with most other stocks as many investors fled to the safety of U.S. government bonds.
“When you sell your portfolio, you say, well, what’s cyclical, and that includes mining stocks,” says HSBC analyst Patrick Chidley, who called gold-mining stocks a “buying opportunity” in a June research report and still thinks they will pay off.
Investors who once turned to gold miners to gain exposure to bullion now can purchase exchange-traded funds that are backed by gold.