Gold Miners vs Gold: Relative Value or Long-term Loser?
They say in a gold rush, you should sell shovels – not dig for gold. But if you’d bet on gold miners vs gold itself over the past 20 years, mining stocks would be down big against the metal. This chart divides the VanEck Gold Miners ETF (GDX) by the gold price to get a ratio. The ratio fell roughly 75% since GDX launched in 2006 – meaning gold was a much better investment since then.
Gold miners vs gold: a game of two halves
GDX is an exchange-traded fund, which invests in a basket of around 60 gold mining stocks globally. Its biggest holdings include names like Newmont Corp, Agnico Eagle Mines, and Barrick Gold. The ETF essentially tracks the gold mining market. It’s a cost efficient way to get exposure to gold miners, without having to bet on individual stocks.
As the chart below shows, GDX is only up about 10% in US dollars since it launched in 2006. But it’s up 230% since bottoming in January 2016 – beating gold by about 60% in that time.
Gold also bottomed at about the same time (technically, one month before in Dec 2015). And since then, the metal has “only” gained about 170% in value. And while that’s below GDX’s 230% rally, it’s definitely been a smoother ride. Since 2006, when GDX launched, gold is up by about 350%. And compared to the gold mining ETF, gold has a much better looking long-term chart:
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Gold miners vs gold: opportunity or value trap?
Gold miners have one big edge over gold: operating leverage. When gold prices rise, miners get a higher selling price for their metal and their profit margins expand. Most of their costs (equipment, labor, energy) are relatively fixed. So when gold jumps 20%, a miner’s earnings could double or even triple. That’s probably why GDX beat gold since 2016 – once gold rebounded, miners saw their profits surge.
But leverage works both ways, of course. If gold prices drop, mining stocks tend to crater. On top of that, miners also come with company-specific risks. When you bet on miners, you’re betting on company management, too.
Do gold miners offer better value than gold itself right now? Perhaps, if gold keeps running higher. But if gold loses its shine from here, those miners could be sitting in the dark.
Key takeaways
- Gold miners have operating leverage, so if gold keeps rising, miners could outperform. But if gold drops, miners will likely get crushed.
- GDX has lagged gold massively since 2006, but beaten gold since 2016. Timing matters.
- Gold might be safer than miners in the long run, but miners can rally more in the short run.
As usual, none of this is investment advice. If you liked this piece, check out my free newsletter for how-to guides and investment insights across crypto, stocks, metals, and more.
