By Tyler Laundon
Wyatt Investment Research
When the price of gold is rising, gold equities are typically the place to invest. That is of course unless their costs are rising even faster. And that’s been the problem over the last year-and-a-half.
In short, company-specific challenges break down the “leverage” argument for gold mining stocks.
When miners feel their margins are under pressure, their stocks get slammed. Lower profits per ounce drawn out for years in the future wreak havoc on most financial models, and therefore crush target prices for mining stocks.
One need only look at a three-year performance chart of the Junior Gold Miners ETF (NYSE:GDXJ) versus gold to see how this has played out. Gold is up around 55%, but the GDXJ is slightly negative.