Newmont Mining Corp (NEM), Barrick Gold Corporation (USA) (ABX): Goodbye Gold

Disappointing Performance

The below chart shows the percentage decrease in price between the current price and the 52-week high.  While gold has not performed well, the mining stocks have clearly had a much uglier showing.

This chart show one-year performance, but even as a long-term investment, miners have dramatically underperformed gold.  The below chart shows the five-year annualized return for the stocks in question.

Foolish Conclusion

The future of gold remains uncertain, and you have investors on both sides of the debate.  Many think that this is just the beginning of the end as the gold bubble continues to deflate.  There are also those who view this as a buying opportunity as Central Banks continue to devalue their currencies through ultra-low interest rates. While gold’s direction is uncertain, the data above makes one thing clear; investors should spurn gold miners and invest directly in a gold ETF.

Put simply, mining stocks are now performing like levered bets on gold.  Due to their established cost basis per ounce, a drop in gold prices represents a much larger loss in profits then the drop in the spot price.  For example, if a miner has an all-in cost of $1,000/ounce and prices drop from $1600/ounce to $1,400 ounce, this represents a 12.5% drop in gold prices, but a 33% drop in profitability for the gold miner.

The article Goodbye Gold originally appeared on Fool.com and is written by John Timmes.

John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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