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Gold vs. Mining Stocks | Who Wins During Inflation?

Gold vs. Mining Stocks | Who Wins During Inflation?

March 04, 2024584 view(s)

When it comes to gold and silver, there is no substitute for owning physical metal.  Frequently people are told that if they want exposure to gold and silver, they can just buy mining stocks instead.  But this is usually not the same thing.  For the week, gold is up 1% to $2,044, silver is down 2% to $22.65, platinum is down a fraction to $894, and palladium is off 2% to $969.

Gold and/or silver miners are often affected negatively by inflation, whereas those who own physical gold and silver often benefit from the same inflation.

 

Case in point would be Newmont, one of the largest and most stable gold mining stocks out there.  In December of 2021, gold was around $1,800 per ounce, and Newmont was over $79/share.

 

Since then, gold has moved over $230 higher. The mantra we often hear is that when metal prices move higher, mining stocks will outperform the metals themselves.  But today, Newmont shares have dropped to $31/share, a loss of nearly 61%.

 

$1,800 worth of gold purchased then is today worth $2,030.  $1,800 worth of Newmont purchased then is today worth $706.33.  Those owning gold are the clear winners here.

 

Why is this the case?  The same inflation that causes gold to rise can also drive-up mining costs even more, making it more difficult for the miners to make a profit.


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