In the past month, gold $Gold - main 2406(GCmain)$ prices are hitting new highs. And on the first trading day of April, the price of gold hit a record high of $2,265. Besides the latest inflation data in the US that solidifies the expectation of Fed rate cuts, precious metal prices are also supported by risk factors such as geopolitical tensions.
Meanwhile, the price of large Gold mining stocks, represented by $VanEck Gold Miners ETF(GDX)$, is still down 2% over the past year; Junior Gold Miners, represented by $VanEck Junior Gold Miners ETF(GDXJ)$, are down 1.17% over the same period, puzzling investors.
This is the biggest disconnect he's seen in his 25 years of tracking gold and gold stocks. I attributes it to investors shifting away from gold mining stocks and gold ETFs cannibalizing the demand for them.
—John Hathaway, senior portfolio manager at Sprott Asset Management
Niël Pretorius, CEO of DRDGold, said:
Recent AI-focused tech stocks have eaten up a lot of investment money that previously went to gold stocks. Although gold stocks are more attractively valued, they are not immune to a sell-off.
And Michael Gray, partner at Agentis Capital, said that lack of liquidity is a major issue facing junior resource industries.
Some analysts also point out that gold has outperformed gold stocks over the past three years, and historically, gold miners tend to perform well after lagging far behind gold. This divergence is just a short-term phenomenon.
Gold analyst Adam Hamilton said:
The spring rebound in gold stocks has proven to be the strongest seasonal rebound during a gold bull market. For instance, while the GDX index is still down 2% from a year ago, it's up 22% since February 28th, and GDXJ is up 14.5%.
So if you're looking to bet on gold in the next few weeks and months, gold mining stocks are actually a better choice. With central banks about to start cutting interest rates, now is a very good time to invest in gold stocks.
Jeff Clark, founder of TheGoldAdvisor.com, pointed out that looking back at 11 easing cycles since the 1970s, gold prices have risen in 9 of them. And during the Fed's last three easing policies, gold stocks have climbed as much as 400% overall.
The chief market strategist at Purpose Investments, said that investors may be better off buying gold stocks than physical gold bars. Gold stocks offer a higher level of safety and greater upside potential.
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