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If you’ve been following along, you might remember that last week, I pointed out the difference between investing in a precious metal ETF and a mining stock.
While we were talking about silver at the time, what just happened with Newmont Corporation (NEM) is the perfect example of why this difference matters.
Let’s rewind. In last week’s piece, I mentioned that investing in an ETF like SLV is a way to “play the metal itself” without having to worry about any single company’s performance.
With mining stocks, you’ve got other factors at play: CEOs, earnings, costs of production — all of which can make or break their stock price even if the metal itself is doing great.
The NEM Drop After Earnings
Take a look at what’s just happened with Newmont Corporation (NEM) this past week.
This stock had been on a tear this year, even outpacing gold’s gains. From the start of the year to its peak just a few days ago, NEM was up a whopping 42%.
And if you count from its late-February low point, it was up over 100%.
But after its earnings report came out on October 23, it tanked. NEM has since fallen as much as 20% from its October 22nd peak. That’s a brutal drop for anyone who jumped in late.
Meanwhile, the SPDR Gold Trust ETF (GLD), which tracks the price of gold itself, has stayed much steadier.
Since October 22, GLD has only dropped around 1.4% at most, and it’s now sitting close to its all-time high. That’s a huge difference in price stability between the metal and the mining stock.
Why Miners and Metal ETFs Aren’t the Same
So, what’s the takeaway here? It’s simple: mining stocks and precious metals ETFs are not the same animal, even if they’re both connected to the same metal.
When you buy into a mining stock like NEM, you’re not just betting on the price of gold — you’re also taking on the company’s operational risks, earnings reports, and other business factors.
This time around, NEM underperformed expectations, and the stock took a hit even though gold is still going strong.
While gold miners can sometimes outperform the metal they mine, as we saw earlier this year, it’s a double-edged sword. When the company misses a beat, shareholders feel the impact fast, and in a big way.
Bottom Line
Precious metals ETFs like GLD give you a more direct way to track the price of gold without the added risks of company management and quarterly reports.
Mining stocks, on the other hand, have that potential for higher returns when things go well, but they can drop just as quickly when things go south.
So, if you’re looking to invest in gold or silver, think carefully about what kind of exposure you’re comfortable with — and remember, a miner and an ETF are not the same thing.
— Geof Smith
P.S. Speaking of gold… If you’re interested in what’s driving this massive run up in gold, you won’t want to miss my upcoming live briefing, tomorrow — October 29th @ 12pm Eastern.
I’ll be covering what I’m calling the “Perfect Gold Trade” and sharing how to tap into this setup — one I believe has the potential for major gains as gold’s “perfect storm” builds. Click here to register your spot now! | | | | |
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