Three reasons why Gold Miner stocks not going up

Gold prices have been sky-rocketing and many analysts peg prices to climb to $2000-$2500 levels in a span of year or more. From $272/oz in the year of 2000 to $1,750 today, the journey has been breath-taking.

Now, one would assume that gold prices skyrocketing, the companies that mine gold out there should also see an appreciation in their respective stock prices. No, the assumption is wrong.

It simply is not happening and there are three reasons:

High operating costs, widespread labour disputes and the popularity of bullion exchange-traded funds.

While the graph above is self-explanatory when it comes to the case of high operating costs, widespread labour disputes in South Africa, especially at the Anglo Gold Ashanti, amongst the world’s top three bullion producers has rocked the mining space.

And reports suggest that the strike is spreading.

South Africa alone accounts for 34% of global bullion output. While a strike there can send alarm bells ringing in places across the globe, investors would see appreciation of gold prices even as they see depreciation in mining stocks value making the stocks less attractive.

The popularity of Exchange Traded Funds amongst investor community is also a drag on mining stcoks. With investors pouring money into the Exchange Traded Funds, the miners are losing out to a chunk of prospective buyers. (SPDR Gold shares, the world’s biggest ETF has $72 billion in assets and is backed by 1,289 metric tons of bullion. It is growing at an ‘alarming’ pace)

The net effect: mining stocks suffer.