This past weekend, we received this question from a reader. The question is in reference to our recent article, Bull Steepener is Bearish. Specifically, the article points out that historically, stocks tend to do poorly when the yield curve exhibits a bullish steepening. However, gold miners and gold have both averaged positive returns during such yield curve shifts. Moreover, during these periods, gold miners produced a better return than gold. Therefore, the question from our reader is, are gold miners better than gold if the yield curve continues to steepen bullishly?
While our data on the last five bull steepenings argues the answer is yes, historically, gold miners have been a poor substitute for gold. As shown in the graph below, since 1994, the NYSE Gold BUGS Index (HUI), which tracks gold miner stocks, has been up a mere 38%. At the same time, gold has risen over 10x that amount (540%). Miners should provide better returns during gold bull markets as they are leveraged to the price of gold. However, time and time again, we find that faulty management decisions more than offset the benefits of leverage. This is not to say all gold miners underperform or will underperform gold. But choose wisely if you decide to invest in a gold miner over gold. (Click on image to enlarge)
