Gold Mining Shares: A Better Bet Than the Metal Itself

I bought some gold coins a few years back when the price of the metal was in the $300-$400 dollar range.  Since then I have been buying the mining companies.  I started by buying the higher dividend stocks out of South Africa and the UK. (AAUK, GFI, FCX, AU)  Now it seems that just about any of the gold miners provide better value than the metal.  I’m happy with my exposure to gold for now but if I did have to add exposure at $720 an ounce I still prefer the miners. I'm even thinking about selling some of those coins and GLD (gold ETF) and replacing it with positions in miners.

I found two bloggers who agree with my way of looking at the recent run up in the price of gold. 

Jeffrey Saut offers this headline worth reading: “Newmont Mining Trading as if Gold at $528 per ounce, not $700.”  It’s worth reading as an example of the kind of lag the gold stocks are experiencing behind the price of gold. 

I found the more useful blog entry via a comment on Saut’s entry.  Ron Miller’s comment breaks down the various metal reserves of Newmont from their annual report and website.  The reserve amounts are from Newmont’s own estimates but still they are likely accurate.  I have not confirmed his numbers though but they do provide useful information as to how gold producer valuations imply lower gold prices than the underlying metal.  There is something quite similar going on with petroleum producers.

Good summary of the reasons why gold has gone up so much by Randolph Buss here:

Disclosure:
I own Goldfields (GFI), Newmont (NEM), Anglogold (AU), Angloamerican (AAUK), Freport Mcmoran (FCX) and Inco (N), and Streetracks Gold ETF (GLD).  I am long gold futures (ZGM6).

This blog is meant to showcase my personal opinions and in no way consitutes advice or is meant to suggest that you do any of the trades mentioned herein.  I do not log every one of my trades in this blog.