If you’re anything like me, you caught the gold bug over the past year or two. However, investing in the precious metal is easier said than done. Buying physical gold can be somewhat of a daunting task. Alternative investments, such as Gold ETFs or individual gold mining stocks are options. I decided to go with the latter.
I own three well-known mining stocks; Newmont Mining (NEM), Agnico-Eagle Mines (AEM) and Barrick Gold (ABX). My return on these three stocks the past year is -7 percent, -3 percent and 2 percent, respectively. Gold is up roughly 25 percent over the past year.
You may now be asking the same thing as me, what gives?
Gold rose 25 percent, while the mining stocks languished over the past 12 months. Did the companies have bad earnings, were there large scale issues with mines that stopped production? The answer to these questions is essentially, no.
I realized it had been quite sometime between gold’s previous bull market and the current one. So, I decided to look back at gold’s last bull market, particularly 1971 to 1980, as that’s when we saw very robust growth in the metal. Then I looked at the individual mining stocks and made an interesting discovery.
Gold mining stocks did not participate in the bull market! Well, atleast not until the end of the bull market.
Looking at Newmont mining, I saw shares began 1977 at $28 a share and ended 1978 at $21.50, a 23 percent loss over two years. Meanwhile, gold rallied 56 percent in the same timeframe. Those stats run similar to my present day situation, so again, what gives?
In 1979 gold prices really accelerated, maybe even to “bubble” status. The precious metasl surged 126 percent for year to $512 an ounce. Such a move had to fuel a rally in the miners, right? Well, it did, Newmont shares jumped 84 percent to close out the year at $39.62 a share.
Shortly after 1979 gold had a blow-off high, topping out in January of 1980 at roughly $850 an ounce. However, this wasn’t the end of Newmont’s run as shares tacked on another 17.4 percent in 1980, despite gold posting a small loss and being off 30 percent from the 1980 top.
I now find it easier to be patient with my miner stocks since the possibility of a strong run still exists, if history is any indicator. Are we close to a blow off top? I don’t know, but I can tell you I am looking forward to when it occurs.