Why Gold Bullion May Outperform Mining Stocks

“Bullion is likely to begin outperforming its producers”, the mining stocks, John Roque, managing director at WJB Capital Group, told Bloomberg.  According to his technical analysis, “gold should do better than gold equities … it doesn’t mean the stocks won’t perform, but they will likely do less well relative to the metal.”

It’s been 14 months since mining stocks were last as expensive as they are now relative to physical gold. So, mining stocks may turn the performance lead back over to the bullion price. For four sessions in a row gold futures have risen, which the article attributes to the widely held belief that the Fed is going to be slow to raise interest rates. The Fed’s continued inaction is weakening the dollar and that tends to drive the price of gold higher in dollar terms.

Another reason bullion could outperform mining equities is the ongoing success of exchange-traded funds like GLD. Previously investors purchased gold mining stocks to capture increases in the value of gold, but they now also use gold ETFs which can be more direct and convenient. For investors on the fence between bullion and mining stocks, this is a clear vote in physical gold’s favor.

The full details are available from Bloomberg in its coverage of gold mining stocks underperforming bullion.