Gold stocks dipped Wednesday as the Market Vectors Gold Miners ETF (GDX) fell 0.2% to $62.87 per share. The modest drop sell-off in gold stocks and the GDX was fueled by a decline in gold futures, which retreated $3.40 to $1,826.40 per ounce. The S&P/TSX Global Gold Index, Canada’s leading basket of gold stocks, slid 0.3% alongside the GDX.
With today’s weakness in gold stocks, the GDX cut its year-to-date gain to 2.0%. Gold stocks as a group have significantly lagged the yellow metal in 2011, which has surged 28.5%. Furthermore, the GDX has failed on numerous occasions to confirm the new highs in gold bullion this year. The gold stocks ETF currently sits 2.7% below its $64.62 record level, reached on December 7, 2010 when gold was trading near $1,430 per ounce.
While many analysts and investors have weighed in on the underperformance of gold stocks relative to the yellow metal, this week the CEO of one of the world’s largest gold mining companies offered his opinion. In an interview with CNBC, Goldcorp (GG) CEO Chuck Jeannes stated that “Something that people don’t appreciate is that the spot gold price today is simply what you can sell an ounce of gold for today. We are operating mines that last for 10, 12, 15, 20 years, and so the market has to value us based on a long-term view of the gold price.”
Looking ahead, Jeannes remained positive on the outlook for gold stocks. When asked if and when gold stocks will play catch-up to the yellow metal, he responded that “I don’t think that’s happened yet. This move (in gold prices) has been so rapid, the market hasn’t got its head around what the long-term implications are and as that happens, you’ll see gold equities move.”
Given that gold stocks and the GDX have lagged the yellow metal so significantly, many investors have contended that gold ETFs are a better investment than shares of gold companies. Jeannes addressed this issue by saying that “Perhaps most importantly, we can grow. You can see Goldcorp growing 60% over the next few years. An ETF or a gold bar in your vault can’t grow, so if we look at the relative investments over the long term, a well-run gold company should outperform physical metal over the long term.”
In morning trading, shares of GG – the second largest component of the GDX – dropped 0.6% to $52.01 alongside the broader gold stocks sector. Other notable gold stocks moving lower in concert with the GDX included IAMGOLD (IAG), Kinross Gold (KGC), and Randgold Resources (GOLD). IAG, KGC, and GOLD fell 0.7%, 0.6%, and 0.2%, respectively.