Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks Under-perform All Other Sectors

Commodities / Gold & Silver Stocks Sep 11, 2012 - 05:55 AM GMT

By: Bob_Kirtley


Best Financial Markets Analysis ArticleDifferent investors prefer to invest in different products for a multitude of reasons and end goals. A vast range of equities, currencies, bonds and commodities can now all be traded from the click of a mouse anywhere in the world. Although not our predominant focus, equities have several pros and cons, can lead to significant wealth, especially with the market in the right state. On the flip side, some traders preach the benefits of gold mining stocks as a way to benefit from rising gold prices – a view we strongly disagree with.

Equity investors have virtually unlimited combinations of companies, countries and industries they can gain exposure to. The easiest option for such an investor is buying into the S&P 500, which tracks the value of the 500 most valuable publicly traded American firms. This allows exposure to numerous industries, has diversification benefits and is a very common play.

Alternatively, one could narrow their horizon and try to pick individual industries that they foresee outperforming the S&P 500 as a whole. There are a range of ETFs that track specific industries, some of whose performance over the past 12 months we’ve plotted below:

Most have performed very well over this time. XLK (Technology sector index) being the standout, up 34.4% in a year. There is one very clear under-performer though, which our frequent readers will be familiar with from our past postings. That industry tracker is HUI, the gold miners index. Not only has the HUI underperformed all the other equity sectors (the worst of which is still up 14.83%), it has lost 23.07% of its value in just 12 months which amazingly is actually an improvement on the 40% it was down in mid-May.

Even more amazing, this weak performance from HUI has come as gold approaches last year’s all-time high. If you can’t make money in these stocks with the price of gold high, when can you?

We have been pounding the anti-mining stock drum for many years now, as far back as 2008. See our article from 2011 further explaining our preference to avoid them:
Are Gold Stocks the Real Barbarous Relic?  If mining stocks are to turn their fortune around, surely four and a half years was a long enough time frame to see it happen. Looking back to 2008:

Once again over this time frame the miners are down. On the upside this time they’ve outperformed a sector – XLF! Maybe we owe the miners an apology, but first consider the industry XLF tracks. That industry is financial service firms, who as we all know haven’t done so well in recent years due to the financial crisis, so we’ll withhold that apology for now.

Going back two years financial services have done better than the gold miners once again. BUT, at least the miners are in the positives, up a tiny 0.35%!

Why we stay well away from gold mining stocks is abundantly clear.

Some commentators prefer to be more selective in picking their stocks from the larger HUI index, akin to picking a specific industry ETF over the broader S&P 500 index. A very common choice is the “junior” miners index, which tracks smaller less advanced companies that theoretically have more upside potential in their earnings. GDXJ is the symbol for that index, how does it compare?

Plotted in black above, it’s clear to see the juniors do considerably worse than the mining sector at large.

There are various reasons why mining stocks are such a bad choice, which we covered in detail in Are Gold Stocks the Real Barbarous Relic?

Often cited as the reason to buy gold stocks is the supposed increased leverage to the gold price they allow. This is simply not the case as we covered in our recent article Gold Stocks Vs Options. Gold stocks do not accurately or reliably track the price of gold in direction or magnitude, sometimes going in the opposite direction! Options on the other hand, allow for near perfect exposure to the gold price, high leverage if one chooses  along with other benefits including:

  • Flexible timing, one can speculate on the gold price next week or in two years or more
  • Downside is known and limited
  • Speculating on increasing, decreasing, or unchanged prices is achievable
  • Upside is unlimited, with huge returns in short time frames easily achievable
  • Customizable leverage

Our preference between mining stocks and options is clear, and unlike the miners our past return is not only positive, but very high. What would you trust more to generate a return?


If someone wants exposure to gold then they should buy physical gold. If they want to increase their exposure with higher leverage, options are a great tool.

If someone wants exposure to equities, buy into the S&P 500.

Trying to combine the best of gold and equities by buying mining stocks is a flawed, poorly considered and most likely a doomed-to-fail strategy.

Finally, what has performed better than mining stocks and equities?

No prizes for guessing gold (green line) is the clear winner. So if you are sick and tired of gold mining stocks delivering abysmal returns, why not give gold options trading a try with our SK Option Trader Service?

To see how our options trading has performed, please visit our website to view our full trading record.

Bob Kirtley

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 200

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in