Gold miners historic underperformance could soon start to improve, UBS says
Gold miners have over the past 10 years failed to increase their returns in line with soaring gold prices, but the situation could soon start to improve if the strong performance seen in 2024 continues, UBS analysts said.
UBS’s analysts led by Daniel Major explained that stocks in gold miners have in the year-to-date 2024 improved their historic underperformance compared to the price of gold — even as gold prices have surged this year to heights of $2,600 per ounce.
Mining companies included on the VanEck Gold Miners ETF GDX 1.69%
have since the COVID-19 pandemic underperformed versus gold by 30%, in a five year period in which gold prices have almost doubled.
UBS’s analysts explained that since the start of COVID-19, this underperformance has largely been driven by ‘multiple compression,’ through which a company’s stock price fails to rise in line with rising earnings.
More recently, the situation has started to improve in a shift that has seen the VanEck Gold Miners ETF increase by around 25% in the year-to-date in line with a similar increase in the price of gold over the same period.
UBS’s analysts noted that gold stocks have the potential to act as attractive hedges against inflation, particularly due to the fact they offer yields in the form of dividends that direct investments in gold don’t.
Gold mining companies, nonetheless, face pressures that investments in gold don’t, including the impacts of inflationary headwinds and the ever present pressure to find new gold reserves.
Either way, UBS’s analysts said gold miners still have a long way to go before they start actually outperforming gold. The analysts argued mining companies will likely have to hike their dividends over extended periods in order to see any significant improvement.
UBS’s analysts added that gold miners also have rebuild trust with investors, by delivering consistent results, following years of underperformance . “We remain skeptical that the gold miners will generate superior returns vs gold,” UBS’s analysts said.
Source: https://www.marketwatch.com/