Why Aren’t Miners Feeling the Rise in Gold Prices?

Despite the fact that commodities (NYSE:RJI) are down 4% according to the CRB Index, with crude dropping down to $91 a barrel, gold was up last week. The CME August gold contract ended the day Friday up $9.90 for the week to finish at $1,539.10, a rise of 0.65%. Many investors took that as a confirmation of what they already believed: that gold (NYSE:GLD) will continue to rise.

But while the NYSE Arca Gold Bugs Index (XX:HUI) and the PHLX Gold/Silver Index (XAU) were both up on Friday as well, they each closed the week with significant losses, and are down 13.36% and 16.09%, respectively, for the year so far. The Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), also up on Friday, was down 4.19% for the week and 18.65% on the year, despite the fact that gold had a record CME close of $1,558.80 as recently as May 2 and is still within 1.0% of its all time highs in terms of U.S. dollars.

One theory for this disparity is that miners are more vulnerable to bullion sell-off. Another is that gold and silver ETFs (NYSE:SLV) have been attracting all the investors, taking away from mining-sector shares. Gold itself has seen average per-share earnings increase nearly 67% since 2009, with the average senior gold miner seeing double the amount of cash flow in that time and the mid-sized intermediate gold companies seeing triple the amount, and yet, “One can purchase shares of gold mining companies at the second cheapest level in nearly 30 years,” says Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors. But according to Holmes, unless gold suddenly begins to decline, eventually its growth will register in the mining sector as well.

For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.