by Peter Schiff, Schiff Gold:
Gold prices have been on a tear, with bullion prices ripping upward since the outbreak of war in the Middle East late last year. While mining stocks have gone up as well, physical gold has been leaving them in the dust:
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Gold stock performance is obviously tied to much more than just the bullion price. For one, shareholder value can always be diluted when you’re holding stocks, regardless of the industry. Gold mining companies also have overhead for exploration, extraction, processing, and storage. There are also price fluctuations in oil, materials, and labor that gold miners have to contend with. Physical gold also comes with some overhead — mainly with regard to storage, transportation, and security — but the costs are lower in comparison.
Still, gold mining stocks have the added benefit of paying dividends. They just come with the need to consider a longer list of variables like executive management, the cost of exploration, and aging equipment that could require repair or replacement. When the broader economy isn’t doing great and overhead costs are lower, winning gold miners can fare extremely well.
In fact, winning gold miners can be very profitable and at times can outperform bullion, especially in the shorter and medium-term. That’s why Peter Schiff still recommends allocating capital to gold miners as part of a diversified precious metals portfolio. However, to protect your wealth in the long run in spite of macroeconomic trends, you should also always hold the metal itself. Regardless of which gold mining stocks you choose, nothing beats physical bullion as a safe haven in an inflationary environment where central bank money printing is running amok.
