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Stefan Gleason: Holding gold yields better returns than mining for it
By Stefan Gleason
Money Metals Exchange, Eagle, Idaho
Thursday, August 29, 2024
With spot gold prices at record highs, investors might expect that shares of precious metals mining companies are also trading at record highs.
By and large, that is not the case.
Mining stocks, as represented by the HUI Gold BUGS Index, are still under water by more than 40% compared to their 2011 highs. And that's despite being pulled up significantly this year by soaring gold and silver prices.
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There are a variety of reasons why most mining shares have lagged the metals. First and foremost, mining is a tough business that is fraught with risks. Even when the value of a mine's end product goes up, the costs of getting it out of the ground can go up even faster.
During periods when market prices for metals fall below a mining company's all-in sustaining costs, it may choose to sell at a loss. That's because it would be impractical for a mine to lay off all its workers and let its expensive equipment sit idle while waiting for market conditions to improve.
But there is another option available to precious metals mining companies during times when their product is being undervalued.
If the CEOs of companies that have "gold" (or "silver") in their name truly believe in their product -- which is money itself -- then why don't they hold some of it on their books as a reserve asset instead of immediately exchanging it for dollars regardless of prevailing price? ...
... For the remainder of the commentary:
https://www.moneymetals.com/news/2024/08/29/holding-gold-mining-003421
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