Photographer: Kiyoshi Ota/Bloomberg

Are Gold Miners Oversold? Three Charts Show Not All That Glitters

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Gold bulls have had a rough several years, but there’s even more pain for gold miners at the moment.

As an illustration of how those fortunes are diverging, gold mining equities are now the cheapest relative to the metal itself since at least the 1980s.

The commodity snapped a 12-year string of gains with declines in 2013 and 2014. This year, it’s down, but only about 3 percent, with a stronger dollar cutting demand for the metal as an alternative, while instability in Greece and China helped to drive a bit of buying for bullion as a haven.

Miners, by contrast, dropped 16 percent year-to-date, as measured by the Philadelphia Stock Exchange Gold and Silver Index. A rally in gold prices in January didn’t last, while companies face rising costs.

Is that a sign that gold stocks are oversold? Some analysts expect the metal’s price to regain some ground in the next six months. Morgan Stanley in July upgraded Goldcorp Inc., the index’s biggest member by weighting, citing an attractive valuation.

On the other hand, the link between gold prices and miners could be weakening for other reasons. Namely, according to Bloomberg Intelligence, investors are increasingly using proxies such as over-the-counter swaps and exchange-traded funds. To wit, the enterprise value of gold miners relative to their reserves and resources is the lowest in at least eight years.

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