[Nuggets] Gold Bullion Beats Gold Mining Stocks. By a Lot.

For generations, stockbrokers have been pushing gold mining stocks as an alternative to the direct ownership of actual, physical bullion.

After all, gold mining revenues are tightly tied to the price of gold. And there’s the potential for a nice bump if the gold mining company happens across a nice vein in the area they’ve chosen to mine. You also get the benefit of long-term equity exposure. And gold stocks pay a dividend, while gold bullion just sits there, quietly appreciating. 

There’s just one problem: It doesn’t work. 

A recent paper from the University of Western Australia School of Business found that gold bullion returns have beaten the pants off of gold mining stocks… for decades. 

From the study:

Specifically, gold mining stocks, as represented by a prominent gold ETF and their portfolio of gold mining companies “underperformed gold bullion by about -350% over a 20-year period or -6.5% annually, from 2006-2025. GDX’s total return over that period was 26%, while gold’s total return over that period was 373%. The corresponding annualized returns are 8.1% and 1.2%, respectively.

There are several structural reasons for this:

First, mines are wasting assets. Every ounce pulled out of the ground must be replaced through new exploration or acquisitions. That constant need to reinvest eats into returns. Gold bullion, by contrast, does not deplete, depreciate, or require capital spending.

Second, mining companies are operating complicated businesses. They face rising labor and energy costs, political risk, massive environmental regulation risk, debt burdens, and, of course, management missteps. Ultimately, shareholders have to absorb all of those costs and risks. 

Third, mining stocks are equities, like all other stocks. In market downturns, they often fall with the broader stock market—even if gold holds steady. They don’t have the same diversification benefit as actual physical gold does.

Besides, the GDX portfolio is trading at over 30x earnings - more expensive even than the overinflated S&P 500. And the dividend is an anemic 0.67%

In short, miners are capital-intensive companies, with a lot of obstacles to profitability. But gold is a serious monetary asset. 

Over time, that difference is telling.

Thanks for reading, and stay tuned for more!

John at Wealth Money Catalyst. 

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John E.
Wealth Money Catalyst

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